Phanton Discharge?

[gymbo]

OK This is the first I've hear of this... read this on an attorney website... about Wisconsin being a community propert 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."

My husband and I each have cc's in our name... Does this mean only one of us can file and all cc's can be discharged?

[HHM]

This came up in an earlier post.

To understand this, lets cover a little back ground.

When a person files BK, all their assets and debts are placed in a legal entity known as the Bankruptcy Estate. The BK estate is created the minute you file for BK. In a community property state, married couples have an undivided interest in their stuff. Another way to think about it, the married couple is a single unit; so in essence, it is as if each spouse own 100% of the assets.

Now, when you file BK, the whole point of doing so is to protect assets from debt collection, which is where exemptions come in to play. When you file BK, you are essentially telling your creditors....look, this is everything I have, and there is nothing for you to collect, so f-off. Since you don't own anything presently that is non-exempt and don't have the income to pay your living expenses and service your debts, your debts get discharged.

So, here is the BIG caveat of the so called phantom discharge. The non-filing spouse is only protected from collection against assets that are part of the BK estate. The non-filing spouse is still, technically, legally responsible for any joint debts. If the non-filing spouse is employed, I believe they are still at risk because the income earned after the BK discharge is not part of the BK estate and therefore subject to collection by the creditors.

Generally speaking, most married couples, especially those in a community property state should file a joint BK. Usually, the reason for having only one spouse file is based on some unreasonable and misinformed fear about the consequences of a BK.

[optimistic1]

I have spoken with almost 10 attorneys now.

Marital debt, regardless of who's name is on the credit cards. So yes you could list all of them and have only one file, they would lose in court. Just make sure you hire an attorney that knows community property. I've had a couple that didnt have a clue about this particular subject. There is alot of misinformation on this topic. But ask yourself this, how could the IRS be wrong too?

When one spouse files a BK, the other benefits from the discharge, just like the website stated.

This is not only on that website you found, but it is on the IRS website, a Idaho State government website, and it is located in the How to File a Chapter 7 Nolo Book.

Most creditors will just treat your state like a non-community property state and never bother you.

Any creditors and Collection Agencies, might attempt to sue you in court. But they would lose, hands down. They cannot sue you for your wages after the debts are discharged, its called a community discharge. One spouse files, it represents the "Community as a whole entity".

The IRS and 10 attorneys that practice here in a community property state can't be wrong.


Post petition wages are still Community Wages and Community Property, and a discharge does in fact bar any creditors from collecting Post Petition Property or wages.

Dont believe miscellaneous websites stating the opposite. They are just simply wrong.

http://www.irs.gov/irm/part25/ch13s04.html

Read all the way at the bottom under Discharge Provisions, hypothetical discharges.

http://www2.state.id.us/ISB/sec/bnk/...etterMay08.pdf

Read Pages 2 through 9.

And check in the Nolo How to file Chapter 7 Bankruptcy book, page 250 third paragraph.


The spouse is "hypothetically" "phantom" discharged of the marital debt as well.

Creditors or collections agencies trying to get around this would be wasting their time.

[gymbo]

Thanks

Optimistic1 - That second link didn't work for me - where can I find that info?
Thanks again.

[optimistic1]

Optimistic1 - That second link didn't work for me - where can I find that info?
Thanks again.

http://www2.state.id.us/ISB/sec/bnk/BNKNewsletterMay08.pdf