To understand how a bankruptcy discharge obtained by one spouse protects the community property (or both halves of the community property) from creditors of the non-filing spouse, lets review the facts and analysis of a bankruptcy case reviewed by the Bankruptcy Appellate Panel in 2007: Rooz v. Kimmel (In re Kimmel), 378 B.R. 630 (B.A.P. 9th Cir. 2007).
Facts of the case:
Creditor sued both husband and wife in state court. A couple of years later, wife filed for Chapter 7 Bankruptcy and obtained a Chapter 7 Bankruptcy discharge. After the discharge, creditor pursued and obtained a judgement against husband. About 10 years later, as the creditor attempted to collect on the judgment, husband filed for bankruptcy. Creditor filed an adversary proceeding in husband's bankruptcy case arguing that the judgment against husband was nondischargeable. Creditor sued wife in state court to obtain an order to collect husband's community property interest in wife's wages (via wage garnishment). Wife reopened her bankruptcy case and removed the creditor's case to bankruptcy court.
Conclusion of the case:
The bankruptcy court found that the creditor's attempt to collect on the judgment against husband by attempting to obtain a wage garnishment order against wife was barred by 11 U.S.C. § 524(a)(3) because the wife received a bankruptcy discharge prior to the judgment against husband. The bankruptcy appellate panel agreed with the bankruptcy court's conclusion because 11 U.S.C. 524(a)(3) provided that the wife's bankruptcy discharge protected all after-acquired community property from claims of creditors of either spouse.
Keep in mind that a bankruptcy discharge does not protect the filer from future debt or post-petition debts. The creditor can still proceed against the separate property of the spouse who did not obtain a bankruptcy discharge.
For more information about how Chapter 7 or 13 Bankruptcy discharge can protect your community property, call Muoi Chea, Bankruptcy Attorney in Sacramento, Stockton, Fairfield, California serving consumers and small business owners in Northern and Central California.