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Community Property States

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  • #31
    To elaborate a litte:

    Let's say two people decided to get married and then they bought a house. Both of them bring their cars, furniture, appliances, etc. from their apartments to the new house. Then one of the spouses decides they need more stuff, so he/she charges up debt on a new TV, new furniture, new appliances, and the couple gets a new car. Later, the spouse who charged up all this stuff loses his/her job and decides to file bankruptcy.

    The non-filing spouse's car, furniture, etc. is not part of the estate because it was purchased or received before the marriage. The house, new car, and all the new property is part of the estate because it was part of the marital community. The filing spouse's personal property, before marriage or not, is also part of the estate.

    All income from both parties is considered on the means test because it is marital income. However, if the non-filer has nothing to discharge, the bankruptcy wouldn't hit their credit because there is nothing to discharge on their credit report. It's complicated and may cause problems if the non-filer has trouble proving what was purchased before marriage, but by the books, it's not part of the estate.

    Now if both spouses have debt, it is ALWAYS best to file jointly, community property state or not (mainly because it's cheaper). But in some cases, it does make more sense for only one to file to avoid the other losing property or taking a credit hit which would leave both debtors with no access to credit for emergencies later in the marriage.

    Another thing to be wary of is the non-filing spouse's status as an authorized user. All the bad credit will stay on their credit report unless the filing spouse removes the authorization to use his/her credit card. It is also important for the non-filer to check their credit reports and dispute anything that should have been removed, before AND after the BK.

    At least this is the way it works in Ch. 7. Ch. 13 would be tougher because the 'family' budget includes the entire household's income and expenses, so although the credit report could be salvaged, the non-filer would have to participate in the court-ordered repayment plan, which could have negative consequences should he/she decide to charge credit cards if the payment plan doesn't allow for what he/she wants to spend - this could push the non-filer into becoming a filer later AND it could be much more scrutinized by the BK court.
    Filed Joint, No Asset, > $100,000 Unsecured Ch.7 6/7/13 ~~ 341 Meeting 7/15/13 ~~ Discharged 9/16/13 !!

    Comment


    • #32
      Correct. Only the non-filing spouse's property acquired before marriage is exempt outside of the traditional exemption methods.

      The debt is joint if an account was created in both spouse's names or if there is secured property involved.
      Filed Joint, No Asset, > $100,000 Unsecured Ch.7 6/7/13 ~~ 341 Meeting 7/15/13 ~~ Discharged 9/16/13 !!

      Comment


      • #33
        Originally posted by bellessima View Post
        If a divorce is final before one spouse files BK Ch 7 in Az....how will the other spouse be effected?

        Thanks

        By incurring marital debt together, and then divorcing, the other spouse is legally obligated for those marital debts @ 100%, a creditor could sue and win against a divorced spouse in a community property state, the question is would they??

        So, in a scenario like that, both divorced spouses would need to file seperate bankruptcies to discharge the debts.

        If just one files, the creditors might not even bother suing the other divorced spouse, it just depends, I would have one spouse file and discharge the debt, then wait and see if the creditors try to come after the divorced spouse, and then file as a last resort.
        Last edited by optimistic1; 08-10-2009, 10:18 AM.
        As legal advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of competent legal counsel.

        Comment


        • #34
          Clarification, and I'm sorry for any misleading information...

          I wanted to go back and edit those two posts because after further research, I'm not as sure as I thought about the issue. Don't take them as advice, I may be entirely wrong.

          I have actually asked some attorneys about the community property laws and the laws are not well-defined enough for even the attorneys to give an absolute answer. You CAN file separately in any state (which I don't understand the reasoning behind that if this is such a serious issue), but I would suggest asking SEVERAL attorneys about it first and using all the CYA you can.

          If you want to file without your spouse and you feel there is good reason to, I would first suggest that your non-filing spouse thoroughly inspects all three credit reports. If there are any 'authorized user' card accounts, call the bank and have your spouse removed immediately, and have the spouse dispute all the items with each reporting agency. There is no law against removal of an authorized user, and there is 'supposedly' no liability for the debt. Honestly, it doesn't seem that the credit card companies get it either, because there were no problems removing the few that my wife had listed.

          By clearing the reports of the accounts, at least it would make it less likely that after the discharge your creditors would have open books on the accounts, and it would also remove the negative information currently impacting the spouse if the balances are currently large or there is derogatory information on them. At least this would soften the blow if a joint petition were filed. The actual impact and the action of creditors, it seems, is based on how EVERYTHING as a whole is reported.

          If you have obvious joint or secured debts, they will not be dissolved by your bankruptcy alone, so keep that in mine as well. I will continue to pursue the question with attorneys because it seems like this would be a very common problem with BK in community property states.

          The community property and income DEFINITELY are included in the means test, so keep that in mind as you venture off into your BK.

          Here are some attorney responses:

          Houston Bankruptcy attorney:
          "You ALWAYS have the option to file alone, although it may not be wise. The decision to file a joint or single case is complicated (as are most bankruptcy issues).

          Although you can always file alone, you must disclose information concerning your community property assets, and your joint income. Your joint income will be considered in determining whether the filing is abusive, regardless of whether your spouse joins in the filing."

          California Bankruptcy attorney:

          "I'm sorry you haven't received a solid answer, and I'm afraid I'm not going to improve your mood much. The reason is that there simply isn't a definite answer. The best one I can give you is that if you file bankruptcy separately (your wife does not file), then it might affect her credit somewhat, but it will not be shown as a bankruptcy on her credit report. Part of the problem with this is that nobody knows what criteria credit reporting agencies use to make their determinations. Clearly her credit report will not be affected as much (if at all) as if she filed her own bankruptcy case, but there's always a possibility, especially in joint credit situations, that her score may be reduced somewhat. It also may not affect her credit at all, but it would be wrong to point out that there's no chance of it being impacted."

          So what are the odds of liability and negative credit impact? I still don't know.
          Filed Joint, No Asset, > $100,000 Unsecured Ch.7 6/7/13 ~~ 341 Meeting 7/15/13 ~~ Discharged 9/16/13 !!

          Comment


          • #35
            Most creditors dont even know what the hell a community property state really means, once you discharge all the debt, they rarely would try to bother the non-filing spouse, thats what the state certified bankruptcy attorney told me once.
            As legal advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of competent legal counsel.

            Comment


            • #36
              We included my husband on the BK because it didn't cost anymore to add him and we wanted to be over and done with it and never have to deal with creditors trying to collect. I am happy we made that decision. I felt he was MORE vunerable living in a community property state than if we weren't!
              Chapter 7 Pro Se....Discharged Feb. 2006

              Comment


              • #37
                Originally posted by CindyLou View Post
                We included my husband on the BK because it didn't cost anymore to add him and we wanted to be over and done with it and never have to deal with creditors trying to collect. I am happy we made that decision. I felt he was MORE vunerable living in a community property state than if we weren't!
                Did he have any bad debts? That's what this is all about, really, forcing a responsible person into debt because of what their significant other did... I got some more responses from lawyers and it really doesn't seem like there is a black and white answer anywhere... a game of chance?
                Filed Joint, No Asset, > $100,000 Unsecured Ch.7 6/7/13 ~~ 341 Meeting 7/15/13 ~~ Discharged 9/16/13 !!

                Comment


                • #38
                  He had minimal (maybe $4-5000) and most of my debt was incurred during my previous marriage but still we were worried about the hassle of creditors trying to collect and us having to prove he wasn't responsible. Was just about peace of mind.
                  Chapter 7 Pro Se....Discharged Feb. 2006

                  Comment


                  • #39
                    Originally posted by CindyLou View Post
                    He had minimal (maybe $4-5000) and most of my debt was incurred during my previous marriage but still we were worried about the hassle of creditors trying to collect and us having to prove he wasn't responsible. Was just about peace of mind.
                    So the two of you got rid of a little extra debt then, which is good for both of you. In my situation, my wife owes nothing, nada, that can be discharged in BK, just student loans and we are both on the mortgage. So the concern is, oh say, the car catches on fire and we need to replace it, and both of our credit reports are trashed because we had to file jointly... see what I'm saying?
                    Filed Joint, No Asset, > $100,000 Unsecured Ch.7 6/7/13 ~~ 341 Meeting 7/15/13 ~~ Discharged 9/16/13 !!

                    Comment


                    • #40
                      Originally posted by CindyLou View Post
                      I felt he was MORE vunerable living in a community property state than if we weren't!


                      That presumption is inherinently false, under normal circumstances. The notion that your credit is completely destroyed by getting a discharge is also inherently false, you might have to pay more in interest though.
                      As legal advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of competent legal counsel.

                      Comment


                      • #41
                        Originally posted by optimistic1 View Post
                        The notion that your credit is completely destroyed by getting a discharge is also inherently false, you might have to pay more in interest though.
                        Okay, so I guess I'm still not getting the big picture somehow. Joint filing = both of our dischargable debts are discharged. Wife has no dischargable debts. So what would the filing do to her credit? She would have a public records section showing she filed bankruptcy (on zero debt), right? So what good would a joint filing do for her?
                        Filed Joint, No Asset, > $100,000 Unsecured Ch.7 6/7/13 ~~ 341 Meeting 7/15/13 ~~ Discharged 9/16/13 !!

                        Comment


                        • #42
                          That would be a question for FICO, as the majority of your score deals with DTI ratio, history of payments, etc. Here is a link to FICO, even they cant answer this question. According to this, if her score is high, she will see a drop after she is equally discharged of your debts.

                          http://www.myfico.com/creditEducatio...ICO-Score.aspx

                          A joint filing in a community property state for marital debt does no good, there is no reason for her to file with you if all of your dischargeable debt was incurred in the community property state while you were married. If you filed without her, the creditors cannot seek anything from her, they have no case. One discharge will protect the non-filing spouse.

                          See,

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

                          And if someone disagrees with this, please, dont tell me, I don't care, email the Moran Lawfirm and argue your point. This is not the only lawfirm that states this either. I can cite several more links.
                          Last edited by optimistic1; 09-09-2009, 10:39 AM.
                          As legal advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of competent legal counsel.

                          Comment


                          • #43
                            Thank you optimistic. I was thinking the same thing (about her credit score drop). I will keep this in mind as I watch the days goes by leading to my eventual BK.
                            Filed Joint, No Asset, > $100,000 Unsecured Ch.7 6/7/13 ~~ 341 Meeting 7/15/13 ~~ Discharged 9/16/13 !!

                            Comment


                            • #44
                              Originally posted by optimistic1 View Post
                              That would be a question for FICO, as the majority of your score deals with DTI ratio, history of payments, etc. Here is a link to FICO, even they cant answer this question. According to this, if her score is high, she will see a drop after she is equally discharged of your debts.

                              http://www.myfico.com/creditEducatio...ICO-Score.aspx

                              A joint filing in a community property state for marital debt does no good, there is no reason for her to file with you if all of your dischargeable debt was incurred in the community property state while you were married. If you filed without her, the creditors cannot seek anything from her, they have no case. One discharge will protect the non-filing spouse.

                              See,

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

                              And if someone disagrees with this, please, dont tell me, I don't care, email the Moran Lawfirm and argue your point. This is not the only lawfirm that states this either. I can cite several more links.
                              My divorce in a community property state was final in Aug of 09.
                              I plan to file Chapter 7 in a few months. I have RE investment properties that are in the negative and 65K CC debt
                              My CC are in my name only and my x's were in his name only.

                              Now that I am divorced, should I still include his unsecured debt on my BK?

                              Comment


                              • #45
                                Question

                                I stopped paying AMEX a few months ago, and soon after, they closed the account.

                                I went on-line to remove my wife as an "authorized user", and I was not allowed to make changes, due to the account be closed.

                                Question; although I have not filed as of yet, I have an attorney that I am working with. Should I have him contact AMEX on my behalf, and ask to have my wife removed? (We have not notified AMEX of anything regarding my plans for filing. All I have told them is that I cannot make the minimum payment that they want - something like 4000.00 now).

                                Any thoughts/advice?

                                Skipper

                                Comment

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