This discussion centers on how the Bankruptcy Code deals with community property. When a married couple files for bankruptcy, all community property becomes the “estate.”
All creditors that could be satisfied by the community may also file claims in bankruptcy. This applies regardless of whether the spouse has incurred the debt. The credit card issuer for the non-filing spouse can file a claim in bankruptcy on behalf of the spouse who applied for relief.
However, the bankruptcy relief granted the filing spouse exonerates the filer not only of his liability on debts but also of the liability of future-acquired property to pay the debts of either spouse.
The credit card company that filed the claim against the nonfiler was therefore barred from collecting the couple’s future earnings, real property, and financial assets.
It’s quite powerful, right?
The Stay
When a bankruptcy petition is filed, the automatic stay protects both the debtor and the debtor’s assets. It prevents any pending litigation against the debtor or any collection action against community property. It does not stop a lawsuit from being filed against the spouse who is not a filer or the collection of the non-filers debts from any property the spouse owns.
Separate property refers to property that a spouse has acquired through inheritance, gift, or pre-marital ownership. California law does not recognize property that is held in the name of one spouse as separate property. However, if there is no prenuptial agreement or valid transmutation agreement, the property will still be considered community property.
The Discharge
The bankruptcy discharge of a spouse protects the person from any dischargeable debts that existed at the time of filing. The filer is the one who files it. Creditors of the spouse who is not filing bankruptcy remain free to sue the other for debts that were incurred before the bankruptcy.
It is difficult to collect on any judgment. The couple was exempted from any liability for their community property. The discharge injunction prohibits creditors from creating a judgment lien on community property. Creditors who file a judgment lien on community property as they would normally do it.
This article was written by Alla Tenina. Alla is a top personal injury lawyer in Sherman Oaks CA and the founder of Tenina Law. She has experience in bankruptcies, real estate planning, and complex tax matters. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.