Discharge of Spouse Protects Community Property

by Cathy Moran, Esq.

May 11, 2007

The usual rule in bankruptcy is that an individual’s discharge only relieves the debtor of liability for a debt.

Anyone else liable on the debt with the debtor remains liable.

The rule is markedly different in a community property state.

As a recent decision in California illustrates, in a community property state, a community creditor cannot reach the post bankruptcy wages of either spouse, as those wages are protected by the one spouse’s discharge.

When one spouse files bankruptcy, all of the community property acquired during the marriage comes into the bankruptcy estate.  All of the claims enforceable against the community property are allowable in that bankruptcy case.

Thus, it’s only fair that , having gotten their bite out of the (community) apple, any community property that is acquired during the marriage, is free of the pre bankruptcy claims.

 

Upon discharge of one spouse, the discharge of Section 524 protects any property that the debtor owns, including any community property acquired by the couple after bankruptcy.

The non-filing spouse remains personally liable on the debts that spouse incurred.  But, by reason of the other spouse’s bankruptcy discharge,  the non filer’s debts can be collected only from their separate property.

The protection of the community property discharge lasts only as long as the marriage does. Death or divorce  terminates the marital community.  Either event will again expose the non filing spouse to collection action on their debts discharged in the bankruptcy of the former spouse.

Image courtesy of  grm wrn.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.

Last modified: April 22, 2012