Community Property States

[optimistic1]

Here is some more information, got it from a california bk attorney. Some of the points noted here are a little contradictory, because in one instance, its says you are not protected, and in the next it says you are but to a certain extent.


How is my spouse affected if I file bankruptcy alone?

Since a bankruptcy can be filed by one spouse without the other, this is one of the most common bankruptcy questions. There are several aspects of the answer.

A bankruptcy filing by one spouse does not bring the other spouse into bankruptcy. Neither does the bankruptcy of a spouse give the non filing spouse the full protection of the automatic stay or the bankruptcy discharge.

Joint debts



Generally, marriage alone doesn't make both spouses personally liable for a debt. Liability on contracts such as home loans and credit cards arises by agreement between the creditor and the debtor. Only persons who signed the loan or credit application are liable for the debt.

A joint tax return, however, makes both spouses liable for the total of the tax due.

If you have joint debts, you can expect the bankruptcy to be noted in some way on the credit record of the non filing spouse. There is uncertainty in the law at the moment as to whether it is proper to mention the bankruptcy of one debtor on the credit report of a debtor who is not in bankruptcy.

Joint property

If you and your spouse own property together, that property may be included in the bankruptcy estate and be potentially available to pay creditors. In community property jurisdictions such as California, both halves of the community property comes into the estate: all of the community property is available to pay community creditors and any other creditorsof the spouse who has filed. So the filing of one spouse could have significant impact on the other.


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.

Credit reports

Each person has (or is supposed to have) a separate credit file for credit reporting purposes. Your debts, if yours alone, are not supposed to show in your spouse's credit file. Similarly, your bankruptcy should not show in your spouse's file if you have no joint debts.

Even so, it pays to monitor your credit file, since credit reporting, like so much else in life, does not always follow the law.

Future credit

The bankruptcy of one spouse will have some effect on the credit worthiness of the non filing spouse if they apply jointly in the future for a loan. The loan grantor will consider the credit rating of both applicants in making a lending decision. More on post bankruptcy credit.

[OweTooMuch]

Hi Optimistic1 - Thank you for your reply - I appreciate it! I think that Community Property states are kind of scary.

[optimistic1]

Liable yes, even with the waiver, if the debt was incurred during your marriage, but its dischargeable, even if only 1 person files for BK. In California, like other community property states, a married couple is one entity, it doesnt matter who's name is on the paperwork, you are both equally liable for the debt. Likewise, you are both equally absolved of the debt if only one person files for BK. Got it?

[OweTooMuch]

HELOC Loan & Community Property?

Hi - I am going to file BK alone. I have only been married a few years and we do not have ANY joint accounts. I did take out a HELOC on my existing house and my husband had to sign a waiver indicating that the house was my sole and separate property. He was on on the application and did not sign anything. Is he liable for this loan? I am thinking it won't be an issue but want to make sure.

[optimistic1]

I have 6cc's in my name my spouse has 7cc's in her name. in az. a community prop state. can I file 13 in my name only? If I can and I file naming all 13 is she clear on the credit report?

How do i go about filtering through all the atty's to find the best one ?

Its definitely plausible, I had an experienced attorney tell me exactly that, he told me that is what community property is all about, he said there is an argument there, because both of you are seen as one sole entity during marriage. So if the debt was incurred during marriage (community), then theoretically one could file for both and both would be discharged. Read the older posts I have on this thread.

[optimistic1]

I live in Nevada. I'm going to file but my wife isn't. I'm going to file on my creditcards and the reserve line on our joint checking. My attorney said that if I go chapter 13 or chapter 7 that they cant go after her because the bankruptcy will clear the debt from both of us. Is that true, or is he full of crap?

No he is not full of crap, he is talking about exactly what I have been trying to get through peoples heads about community property states, this whole thread is about it. That just reiterates my point and it is coming from the horses mouth.

[branainaz]

I have 6cc's in my name my spouse has 7cc's in her name. in az. a community prop state. can I file 13 in my name only? If I can and I file naming all 13 is she clear on the credit report?

How do i go about filtering through all the atty's to find the best one ?

[BKman]

I live in Nevada. I'm going to file but my wife isn't. I'm going to file on my creditcards and the reserve line on our joint checking. My attorney said that if I go chapter 13 or chapter 7 that they cant go after her because the bankruptcy will clear the debt from both of us. Is that true, or is he full of crap?

[optimistic1]

I have read that AMEX accounts sometime will have stipulations in the contract that will legally bind any authorized users to also be liable for the debt. How much of it is the question, will they have the ability to differentiate between the two cards? Most likely. Will they go through the trouble of pursuing the authorized user? Probably not.


@ Bellesima


I would include his debts, if possible on your petition, being that you are no longer married, this will relinquish you from being liable.

Yes, I would include his debts, because once you divorce one another

[Skipper]

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

[bellessima]

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/creditEducation/Questions/Bankruptcy-FICO-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?

[Pizza]

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.

[optimistic1]

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/creditEducation/Questions/Bankruptcy-FICO-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.

[Pizza]

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?

[optimistic1]

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.