Question Filing BK in a community property state

[bookworm]

Hi, all!

This question is for a friend of mine in the state of Washington. She defaulted on her cards about two years ago. She was hoping to wait out the SOL, but was served with a lawsuit a few months back, and is now shopping for a BK attorney. She's married, but all of the credit cards are in her name. Her husband has no debt (smart man). But, from what I understand, because Washington is a community property state, they can garnish his wages and bank accounts. So, does that mean he has to file along with her? (That's the part that always confuses me about community property.) It is her wish to drag him into this mess as little as possible.

Anyway, I told her I'd come on here and ask.

[justbroke]

Your friend should REALLY consult a bankruptcy attorney practicing in Washington. In most cases, non-filing non-debtor spouses enjoy what's known as a hypothetical discharge. Community property bankruptcies are special because anything that was community property, is actually part of either spouses bankruptcy. The non-filing non-debtor spouse gets the discharge for those "specific" community debts.

(Note that the hypothetical discharge would not discharge something that is otherwise non-dischargeable. If a creditor has an issue with a "community" debt, then they should technically file a dischargeability complaint (AP) in the (filing) debtor spouse's bankruptcy to preserve any dischargeability rights.)

[bcohen]

If your friend had already defaulted on the credit cards BEFORE the marriage took place, then any judgment should only be in her name alone, even in a community property state. I just went through this with a lawsuit by Gurstel Chargo/Discover Bank. I had defaulted on my Discover Card (as well as all my other debts) back in March of 2009.

Fast forward to September of 2012, they see that I am now married, and figured that they could sue and attach my wife's income as well as my own. We advised them, in our answer to the suit, as well as in response to their discovery requests that the marriage took place long after the debt was incurred and defaulted, and thus community property does not attach. The plaintiff then dismissed my wife from the suit, so the judgment is in my name alone, and I will file for BK alone.

[justbroke]

You make a very good point bcohen. Divorce affects this as well.

[bookworm]

You make a very good point bcohen. Divorce affects this as well.

Do you mean that, in a community property state, a creditor can go after an ex-spouse for debt that incurred during a marriage?

Yikes! Much as I love Washington, I'm glad I don't live in a community property state. It's so much less complicated.

[LadyInTheRed]

If your friend had already defaulted on the credit cards BEFORE the marriage took place, then any judgment should only be in her name alone, even in a community property state.

The date of default is irrelevant in determining weather it is community or separate debt. As long as the entire debt was incurred before marriage, it is separate property debt even if the default occurs after marriage.

Of course, if the default is before marriage, there certainly is no doubt that it is SP debt.

[justbroke]

Do you mean that, in a community property state, a creditor can go after an ex-spouse for debt that incurred during a marriage?

Yes! It is known that upon divorce, the community debt is "sealed", for lack of a better word. If one of the divorcees files bankruptcy, the other ex-spouse is not protected by the "hypothetical" discharge which is available in a community property State. Think about it. The marriage has ended, and so does the community rights/protections. However, the debt is still there. The spouses are treated as regular co-debtors at this point, whom don't get to enjoy the hypothetical discharge (if only one of them were to file post-divorce).

(Of course, any dissolution of marriage and final decree could control which debts are dischargeable. A Chapter 13 may be able to discharge certain types of debt which may have been assigned as part of the final decree. If you have these issues ore are going to divorce and file bankruptcy, you really need to speak with an attorney to see what protections are available!)