,

Ask Bankruptcy Attorney in Sacramento, Stockton, Fairfield, CA – Does Bankruptcy Discharge of One Spouse Protect Community Property or Non Filing Spouse?

Before answering this question, lets go over the basics of community property.

California is a community property state.  How does living in a community property state like California affects property ownership interests and liability of debts during marriage?  Property acquired during marriage is presumed to be community property.  This is the default setting unless you can prove otherwise in accordance to California Family Code.  Each spouse gets one half or equal, undivided interests in all community properties.

Property acquired prior to or after marriage is separate property belonging entirely to the person who acquired it.  Or property acquire by one spouse after separation (prior to dissolution of marriage aka divorce) is also separate property.  Separate property also includes inheritance or gifts during marriage.

How does the debt incurred by one spouse during marriage affects community property?

If one spouse incurred debt (credit card, medical bill, etc.), the community property is liable to that creditor.  This means that the creditor can garnish the other spouse's wages even though she did not incur that debt because wages is considered community property.  

Community property is liable for premarital debt of one spouse.  The exception to this rule is that there is no wage garnishment for the other spouse's premarital debts assuming the wages is not deposited in a joint bank account.

The community property interest ends upon divorce or death.  At that point, the spouse is no longer liable for the debt incurred by the other spouse.  The separate property of one spouse is not liable for the other spouse's debt.  The community property is liable, not property acquired after marriage.  Each spouse remains liable after marriage for the debts they incurred themselves.

Then, how does one spouse filing for bankruptcy protect the community property?

When a spouse files for bankruptcy, all the community property becomes part of the bankruptcy estate.  The community property is liable to all those creditors, who become parties to the bankruptcy case.

If wife files for bankruptcy and list all of husband's creditors in her petition so that they get notice of the bankruptcy filing, wife's bankruptcy discharge eliminates her liability to those debts and also the liability of the community property.  Moreover, the bankruptcy discharge protects all community property they acquired after the bankruptcy from those same creditors.  No wage garnishment for husband or wife because wages is community property.  Keep in mind, bankruptcy discharge does not protect wife or community property against newly acquired debt after bankruptcy filing.

Husband's creditors cannot collect against the community property.  It does not, however, eliminate husband's personal liability to the debt.  Creditors can still collect from husband's separate property.  If they divorce, the creditors can now garnish husband's wages because it is no longer community property.

Even though bankruptcy filing of one spouse protects the community property, the other spouse might want to file bankruptcy also.

1.  The non-filing spouse is still personally liable for his debts or joint debts.  His separate property is at risk.

2.  Community property does not last forever.  It ends up on divorce or death.  Then, his property will be at risk.

3.  Under California Family Code § 914, a spouse is personally liable for debts incurred for the "necessaries of life" while the couples are together.  Examples of "necessaries of life" are medical bills, mortgage or credit card for food even though the other spouse did not sign for the loan or credit card.

For in depth discussion, call Muoi Chea Bankruptcy in Sacramento, Stockton, Fairfield, California to schedule a Bankruptcy Consultation.  I provide Chapter 7 Bankruptcy and Chapter 13 Bankruptcy representation in Court for all residents of Sacramento, Elk Grove, Folsom, Roseville, Rocklin, down south to Modesto, up north to Vallejo, west to Auburn, and east to Tracy, CA.  Call for representation in other cities in Northern and Central California.