Octomom files for bankruptcy in California

“Octomom” Nadya Suleman has filed for Chapter 7 bankruptcy. “I’ve had to make some very difficult decisions. Filing Chapter 7 was one of them. But I have to do what is best for my children and I need a fresh start,” she told reporters.

Suleman faces $1 million in debt and her assets total only $50,000. She has called her financial state “rock bottom” and is hoping that Chapter 7 bankruptcy will help her start anew. She has been supporting her children with Social Security Disability payments and food stamps. She owes money to her father as well as her gardener, her children’s school, the owner of her house and DirecTV.

Bankruptcy creditors: Priorities and preferences

As Suleman’s bankruptcy shows, the creditors in a bankruptcy action can range from a mortgage company to a gardener and family member.

In a Chapter 7 bankruptcy case, the bankruptcy trustee will liquidate the debtor’s assets to pay back creditors. There are specific rules detailing which creditors receive money when. For example, any creditors with valid liens on your property (such as mortgage companies) get the first bite at the apple. Then, the trustee will pay a long line of priority creditors. Priority debt includes debt such as domestic support obligations, administrative expenses and non-dischargeable tax debt.

Because of these rules, debtors should not pay off one creditor prior to filing bankruptcy. Many debtors would like to pay back their family members or friends before filing for bankruptcy, but this is a mistake. The bankruptcy trustee can go after any of these “preferential payments” up to one year prior to filing, including contacting a family member directly to seize the payments.

There is no evidence that Octomom has made preferential payments. However, her case is a good example of the variety of debts that people face before they file for bankruptcy. If you face multiple debts and are considering filing bankruptcy, contact an experienced bankruptcy lawyer.

Source: Digital Journal, “Octomom Nadya Suleman files for bankruptcy, $1 million in debt,” JohnThomas Didymus, May 1,2012.

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