Community Property States

[bellessima]

In a community property state, you are seen as one entity in the courts eyes, and you can effectively discharge all marital debt in a Chapter 7, and only have one spouse file the petition. Some creditors may think they can come after you, but it would be a waste of time, you can simply mail them the discharge letter and tell them go to hell. If they sue you, file an answer with the court, and bring your discharge paper, your case will be dismissed.

That is why most attorney's will simply tell you to be on the petition as well, so you dont need to deal with headaches like that. But if you hire a very knowledgeable attorney, who is familiar with the laws in AZ, then you can go the single filer route, although, your credit report will still show BK discharges on your accounts, you wont walk away scotch free.

I would file the BK first, and do a joint petition, then file your divorce afterwards. Otherwise, it will cost both of you more money in the long run, as you would both need to hire an attorney for each one of you, and file your own petition with the court, as opposed to a joint filing.

Consult with a experienced, BK/Family Law attorney in your area.

If you PM me, I can give you a link to a reputable law firm, who specializes in both of those fields.

Are you saying that even though we do not have joint CC's
that his filing alone will discharge my CC debt ?
I am still paying mine and he has stopped paying,

Are you saying that I should stop paying my CC and even though I am not filing for BK my CC will be discharged?

Thanks

[redroses]

In community property states, all property the couple acquires during the marriage is divided equally. Issues such as financial need, ability to earn income or fault are not taken into account when dividing property during a divorce settlement.
simulation credit immo

[lrprn]

Are you saying that even though we do not have joint CC's that his filing alone will discharge my CC debt ?

No, this isn't the case.

In a community property state, all debts incurred during the marriage while living in the community property state are the equal responsibility of both parties to pay back. If one member of a couple living in a community property state files bankruptcy, then the spouse becomes responsible to pay back all debt incurred while they were married and living in the community property state.

There are a few partial exceptions depending on the state involved, because there are differences between the community property state statutes. You need to discuss this with several experienced bk lawyers in your state during your free initial consultations to find out what you will be held responsible for and what you won't if your spouse (or ex-spouse) files first. And of course, if you file first, then all the debt shifts towards your spouse and it's up to him/her to sort out what to do.

[optimistic1]

No, this isn't the case.

In a community property state, all debts incurred during the marriage while living in the community property state are the equal responsibility of both parties to pay back. If one member of a couple living in a community property state files bankruptcy, then the spouse becomes responsible to pay back all debt incurred while they were married and living in the community property state.

There are a few partial exceptions depending on the state involved, because there are differences between the community property state statutes. You need to discuss this with several experienced bk lawyers in your state during your free initial consultations to find out what you will be held responsible for and what you won't if your spouse (or ex-spouse) files first. And of course, if you file first, then all the debt shifts towards your spouse and it's up to him/her to sort out what to do.

I hate to disagree with you because you are a moderator, but I have researched this topic, and had several consults with BK and family law attorneys in my state, which is a community property state. The non filing spouse is not responsible to pay anything after the other spouse files a bk on behalf of the community, I had more than one board certified BK attorney's tell me the exact same thing.


If one spouse files a bk in a community property state, the other receives an equal discharge of the community debt. This also is clearly written in the NOLO Bankruptcy book, and even the IRS references the hypothetical discharge of the non-filing spouse in a community property state.

When one spouse files for bankruptcy the nonfiling spouse in effect also receives a discharge, because the community property owned by both spouses is protected against marital debts, so long as the parties are living and stay married. When those debts are discharged through bankruptcy, they are discharged completely, and so both spouses end up being equally absolved of that responsibility. Because one spouse has his or her debts discharged without even having to file, we refer to this as a "phantom discharge."


It doesnt matter who's name is on the card, in a community property state, you are seen as one entity, so if one spouse files, they are filing on behalf of the community as a whole, and the debt will be discharged from the community as a whole.

Any creditor challenging this will lose, and any attempts to collect the discharged debt from the non-filing spouse will be a violation, plain and simple.

[bellessima]

I hate to disagree with you because you are a moderator, but I have researched this topic, and had several consults with BK and family law attorneys in my state, which is a community property state. The non filing spouse is not responsible to pay anything after the other spouse files a bk on behalf of the community, I had more than one board certified BK attorney's tell me the exact same thing.


If one spouse files a bk in a community property state, the other receives an equal discharge of the community debt. This also is clearly written in the NOLO Bankruptcy book, and even the IRS references the hypothetical discharge of the non-filing spouse in a community property state.

When one spouse files for bankruptcy the nonfiling spouse in effect also receives a discharge, because the community property owned by both spouses is protected against marital debts, so long as the parties are living and stay married. When those debts are discharged through bankruptcy, they are discharged completely, and so both spouses end up being equally absolved of that responsibility. Because one spouse has his or her debts discharged without even having to file, we refer to this as a "phantom discharge."


It doesnt matter who's name is on the card, in a community property state, you are seen as one entity, so if one spouse files, they are filing on behalf of the community as a whole, and the debt will be discharged from the community as a whole.

Any creditor challenging this will lose, and any attempts to collect the discharged debt from the non-filing spouse will be a violation, plain and simple.

What if the non filing spouse has inherited assets?and

What if some of the CC debt was acquired before living in a community property state?

If the debt was acquired during the marriage and now they are divorcing before filing the BK petition......??

What Community Property state are you referencing to?
I am in AZ

Thanks

[optimistic1]

If you are married at the time of it being inherited, it is now part of the community as a whole.

If the debt was incurred living out of a community property state, it wouldnt really matter, it all depends on why you see that as an issue. In non-community property states, if one spouse files, the other isnt responsible for it anyway, unless they signed a contract that explicitly states otherwise, or if it was a joint account.

By getting divorced before filing you now have extinguished the community property state phantom/hypothetical discharge for the non-filing spouse. In fact, if you filed a BK, and only had one spouse file, but included all of the community debt, the non-filing spouse would be protected up until you divorce one another, so if you plan on divorcing, then you need to file a joint petition, or the creditors will have a right to seek the money from you because you are no longer a community.

This is where people get mixed up about how a spouse can be held liable for the other spouses debts, it can happen, but under certain circumstances, such as the one I explained to you. Divorce, death, etc can eliminate the phantom/hypothetical discharge. Now the big question is this, will the creditors even bother, most likely upon discharge from the bk court, they will file everything in some warehouse and forget about it.

That doesnt mean that both of you cant still file seperate bk's from one another. This is why most attorney's will just suggest that both of you file to eliminate the complexities of the comm prop laws, divorce laws and bk laws. If you decide to have one spouse file, include all of the marital debt, and see how the local court will rule on the matter, I am sure they interpret the same way that the IRS does.

I am referring to AZ, please pm me if you are in need of a BK/Family law attorney, I know of a few that are familiar with community property laws.

[bellessima]

If you are married at the time of it being inherited, it is now part of the community as a whole.

If the debt was incurred living out of a community property state, it wouldnt really matter, it all depends on why you see that as an issue. In non-community property states, if one spouse files, the other isnt responsible for it anyway, unless they signed a contract that explicitly states otherwise, or if it was a joint account.

By getting divorced before filing you now have extinguished the community property state phantom/hypothetical discharge for the non-filing spouse. In fact, if you filed a BK, and only had one spouse file, but included all of the community debt, the non-filing spouse would be protected up until you divorce one another, so if you plan on divorcing, then you need to file a joint petition, or the creditors will have a right to seek the money from you because you are no longer a community.

This is where people get mixed up about how a spouse can be held liable for the other spouses debts, it can happen, but under certain circumstances, such as the one I explained to you. Divorce, death, etc can eliminate the phantom/hypothetical discharge. Now the big question is this, will the creditors even bother, most likely upon discharge from the bk court, they will file everything in some warehouse and forget about it.

That doesnt mean that both of you cant still file seperate bk's from one another. This is why most attorney's will just suggest that both of you file to eliminate the complexities of the comm prop laws, divorce laws and bk laws. If you decide to have one spouse file, include all of the marital debt, and see how the local court will rule on the matter, I am sure they interpret the same way that the IRS does.

I am referring to AZ, please pm me if you are in need of a BK/Family law attorney, I know of a few that are familiar with community property laws.

[optimistic1]

Wise of you to look up the statutes, you are making me look bad, lol. You are correct, according to the state law, inheritance is not community property regardless of when acquired. And property obtained prior to marriage is non-community property, that is a general rule that most comm. prop states use.

You can file a bk if you have exempt or non-exempt asset's, if they are not exempt they will be taken by the trustee to liquidate. Unless you do a Chapter 13 to which you can keep the property, but you must pay its value to the creditors anyway, they must receive just as much money if you filed a Chapter 7.

[bellessima]

Wise of you to look up the statutes, you are making me look bad, lol. You are correct, according to the state law, inheritance is not community property regardless of when acquired. And property obtained prior to marriage is non-community property, that is a general rule that most comm. prop states use.

You can file a bk if you have exempt or non-exempt asset's, if they are not exempt they will be taken by the trustee to liquidate. Unless you do a Chapter 13 to which you can keep the property, but you must pay its value to the creditors anyway, they must receive just as much money if you filed a Chapter 7.

Forgive me, My intent was to clarify and I appreciate you reply.

Tell me, If I have a non exempt asset and pay its value to the trustee, I can then keep the asset?

and my CC debt will be eliminated in a Chapter 7?

[optimistic1]

Correct, that would be the case if you filed under a Ch.13 or a Ch.7, in all honesty the trustee doesnt want peoples junk, no offense, and non-exempt asset's sometimes are worth much more than junk. So, you can pay the trustee the value of the item as determined that it is over the exemption, and keep it. But that is where it gets tricky, because you can't necessarily have cash on hand to pay for it, because your only allowed so much cash. Once you consult a good BK attorney, he can tell you about the inner workings of the Chapter 7 trustee's and how they handle non-exempt assets. In a 13, you would keep it regardless, but you would have to pay what it is worth into your plan so your creditors can get some money.

Yes, your unsecured cc debt would be discharged in a Chapter 7, as would it in a 13, but it gets more complex in a 13 to say the least. In a Chapter 7, your creditors would receive not a penny in most circumstances.

What type of non-exempt asset are we talking about if you dont mind me asking?

[lrprn]

I hate to disagree with you because you are a moderator...

It is always ok to question anything posted here in the forums no matter who posts it. Thanks for speaking up.

...but I have researched this topic, and had several consults with BK and family law attorneys in my state, which is a community property state.

The key here is "in my state". I'm sure that this is true in your case because of case law precedents already decided in your state. But this doesn't guarantee that it's 100% true in the other community property states across the country.

That's one of the risks here in the forums. Members assume that because something is true for them, true in their local court, or true in their bk district, it's probably true for everyone. Unfortunately it's not.

When filing for bankruptcy in a community property state, the only way to know for certain what to expect in YOUR case in YOUR state is to get expert legal opinions from bk lawyers and property lawyers familiar wish the ins and outs of who is liable for marital debt when a bankruptcy is filed.

[optimistic1]

I found another link, this one is from Moran Law, a northern California (community property state).

Community property discharge

When one spouse files bankruptcy in a community property state, the marital community enjoys the protection of the filing spouse's bankruptcy discharge. Section 524 of the Bankruptcy Code provides that any community property that the filing spouse and the non filer acquire after the bankrutpcy is protected from creditors of the non filer who held a claim against the non filing spouse as of the date of the filing.

A creditor with a claim against the non filing spouse can only collect its debt from the separate property of the non filing spouse. In California, that separate property is comprised of assets acquired before marriage; assets acquired by gift during marriage; or assets acquired by inheritance.

Creditors, despite the fact that the community property discharge has existed since at least the passage of the Bankruptcy Code in 1978, have a hard time believing that someone in a community property state gets the benefit of their spouse's bankruptcy discharge, but that's the law.

http://www.moranlaw.net/alone.htm

Who we are.

Northern California bankruptcy lawyers
Specialists in bankruptcy law for 29 years, the Moran Law Group concentrates its practice in bankruptcy and related debtor-creditor and tax areas. We represent both creditors and debtors in courts throughout the Northern District of California, including Silicon Valley, San Mateo County and the East Bay.

We offer personalized attention, years of experience, and solutions that are practical and cost effective for individuals, businesses and creditors. Meet the lawyers of the Moran Law Group.

Each member of the staff is dedicated to working as a team to provide clients with the best possible legal service at reasonable cost.

[bellessima]

I found another link, this one is from Moran Law, a northern California (community property state).

Community property discharge

When one spouse files bankruptcy in a community property state, the marital community enjoys the protection of the filing spouse's bankruptcy discharge. Section 524 of the Bankruptcy Code provides that any community property that the filing spouse and the non filer acquire after the bankrutpcy is protected from creditors of the non filer who held a claim against the non filing spouse as of the date of the filing.

A creditor with a claim against the non filing spouse can only collect its debt from the separate property of the non filing spouse. In California, that separate property is comprised of assets acquired before marriage; assets acquired by gift during marriage; or assets acquired by inheritance.

Creditors, despite the fact that the community property discharge has existed since at least the passage of the Bankruptcy Code in 1978, have a hard time believing that someone in a community property state gets the benefit of their spouse's bankruptcy discharge, but that's the law.

http://www.moranlaw.net/alone.htm

Who we are.

Northern California bankruptcy lawyers
Specialists in bankruptcy law for 29 years, the Moran Law Group concentrates its practice in bankruptcy and related debtor-creditor and tax areas. We represent both creditors and debtors in courts throughout the Northern District of California, including Silicon Valley, San Mateo County and the East Bay.

We offer personalized attention, years of experience, and solutions that are practical and cost effective for individuals, businesses and creditors. Meet the lawyers of the Moran Law Group.

Each member of the staff is dedicated to working as a team to provide clients with the best possible legal service at reasonable cost.

If a divorce is final before one spouse files BK Ch 7 in Az....how will the other spouse be effected?

Thanks

[lrprn]

If a divorce is final before one spouse files BK Ch 7 in Az....how will the other spouse be effected?

Bellessima, only an experienced bk lawyer working with an experienced divorce lawyer in Arizona can reliably answer your question.

The community property laws vary a bit between each community property state, and the divorce laws are even more variable from state to state. There's no absolute one right answer for every divorcing/divorced couple, no matter where they live and no matter who files first.

Divorce and bankruptcy laws on the state level make for uneasy partners that sometimes can even be in conflict with each other, so expert legal advice is needed to know ahead of time what might happen if one of the couple files bankruptcy before or after the divorce is final.

[Pizza]

Texas is one of those community property states, and the guy with the "pill" avatar has quoted stuff I've read several times. If one person owes all the money and the other does not, the filing spouse can still file separately, BUT all the community property acquired after the marriage is part of the estate, as is all household income considered for the means test. I'm not 100%, but this is how I have interpreted all the data.

Now divorce is different. The hypothetical discharge is dissolved in divorce and the non-filer can be held responsible for debts they did not discharge personally (or jointly) because there is no longer marital property or debts, it's a 50/50 split and the non-filer becomes one entity.

I think usually that the sole basis of filing separately is to protect someone's credit and pre-marital assets who does not have enough debts to want to be involved with the BK. Sort of an incentive to keep the marriage alive, IMO.