Non-filing Spouse Getting Sued by Creditor in Wisconsin

[patrienm]

In 2009, I filed for chapter 7 bankruptcy in Wisconsin. Upon filing, my husband chose to be a non-filing spouse. All debts, including his non secured debts, were included in the paperwork. In November of 2009, a complete discharge was granted and closed.

Last week, my husband was served papers from a credit card company for the balanced owed. In a community property state, I understand the risks involved in a Phantom Discharge, however his debt was under $7,000 and the creditor is coming after him over one year later! How common is this?

I contacted my attorney's office informing them of the law suit and was informed that my attorney had left the firm and that they were no longer representing me. I called back to speak to an actual attorney and was told "We have spent much time speaking w/ you and are no longer taking your calls".

What are my rights as a client in this matter? Not only do I feel disrespected, but how can the firm refuse my calls when I feel this law suit could have been prevented?

Any ideas on how can we handle / fight this law suit?

Thank you very much.

[HHM]

Two issues...

1. Attorney/Client : you are out of luck on this one. Once the bankruptcy is closed, representation ends. They have no further obligation to you. If you understand the risk of the phantom discharge, then why do you think the suit could have been prevented by your lawyers, you and your husband CHOOSE for him to be a non-filing spouse.

2. Your phantom discharge. There are some on this forum with more intimate knowledge of how debts work in community property states, but I do see one potential problem. The phantom discharge works on JOINT DEBTS. If only one spouse files on a joint debt, that debt is discharged as to both (in essence) because that creditor has no recourse to the community assets. But if "his unsecured debts" were his sole and separate debts and he is a non-filing spouse, I don't think you get a phantom discharge for those debts.

[newbie2]

I don't know how the "phantom" discharge works as I am not in a community property state, but what you need to think about doing is talking to another attorney about that debt of your husbands. The attorney that you used for your bankruptcy probably is not contractually obligated to keep helping you, as his work is done. Unless you had something written in your contract with him about lawsuits post-discharge, they have been paid for their work and their services to you are complete.

Edit: HHM and I were typing at the same time :-) As usual, his answer is much more thorough and on target.

[tcreegan]

Hi patrienm,

"a complete discharge was granted and closed." ....don't feel disrespected, this sounds like they did a good job!

20/20 hindsight here, but always check the retainer/fee agreement to see exactly what is covered and what isn't. And for what isn't covered, how much and how likely will it happen. ...like I said, 20/20 hindsight here, bummer.

"Any ideas on how can we handle / fight this law suit?"

....in a community property state, first thing to find out is whether it is community debt or his separate debt.

Was it acquired during the marriage? Community debt would be acquired during the marriage, not before

Was it for household use? If it was for his "sole and separate" use, it is not community.

From what I have read on WI attorney websites, only one spouses name of the debt doesn't keep it from being community if it was acquired during the marriage for household use. This is from the NOLO site:

http://www.nolo.com/legal-encyclopedia/debt-marriage-owe-spouse-debts-29572.html

community property states, most debts incurred by either spouse during the marriage are owed by the "community" (the couple), even if only one spouse signed the paperwork for a debt. The key here is during the marriage.

The next key fact is if this creditor was listed in your BK. If they were, you should be able to file an answer in the lawsuit showing it was community debt and was discharged in the BK.

If they were not listed....not good.

If you gave this creditor/acct/balance info to your attorney and they left them off the creditors list, I think they owe you and should fix it. WI didn't become a community property state yesterday, any BK attorney in the state should know about listing community debts.

If you didn't give this creditor/acct/balance info to your attorney....ouch...

And of course, the path of least resistance might be to settle with them. Especially if it is for less than you can hire an attorney to fight it.

Whatever happens, best of luck to you!

Tom in Colo

[despritfreya]

Patrienm,

As I mentioned on the other forum, and repeated here by the above posts, your prior attorney's representation has ended. Expanding on what I wrote in the other forum, I am now going to clarify the "community discharge" which protects "community assets."

11 USC 524(a)(3) states "a discharge operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect or recover from. . . property of the debtor. . . that is acquired after the commencement of the case, on account of any allowable community claim." The Statutory Notes associated with this section state "Subsection (a) also codifies the split discharge for debtors in community property states. If community property was in the (bk) estate and community claims were discharged, the discharge is effective against community creditors of the non-debtor spouse as well as of the debtor spouse."

It has always been my understanding that a creditor simply cannot collect against community assets when a community debt has been discharged. To me this does not mean that the creditor cannot sue the non-filing spouse for any sole and separate liability that will "arise" once the community is severed. The community will be severed either upon the death of one of the spouses or upon divorce/legal separation. Assuming a long life and no divorce, at some point the debt or judgment becomes stale and cannot be enforced.

Typically, in a situation like yours, I will contact the creditor who is attempting to collect and tell them to go away, citing the community discharge. 9 times out of 10 this works since the creditor (or the attorney) may not understand the difference between suing the non filing spouse and collecting against community assets. However, there is at least 1 firm in my city that knows the "true" ramifications of Section 524 and I know I cannot get away with my BS argument.

Your husband could file an Answer to the Complaint indicating that since there is a community discharge he is protected from the suit under 524(a)(3). It is always possible that the judge will agree and dismiss the Complaint.

Des.