What’s a “community claim”? – One of a series

13 Dec What’s a “community claim”? – One of a series

Wisconsin, not to mention quite a few of the states in the West and Southwest, recognizes “community property” between husband and wife.  Usually we think about “community property” in connection with a divorce and matrimonial proceedings.

However, community property also brings us to a concept recognized in bankruptcy as community claims. This idea has a big impact in bankruptcy cases of married couples in community property states.

The term community claim in bankruptcy means a right to payment for which community property could be held liable, whether or not there was any community property as of the commencement of the bankruptcy case.

What in the world does that mean?   Well in order to figure this out, we need to think about whether the property of a debtor is community property under the Bankruptcy Code.  We look to state law to find this out.  If, under state law, the property of one spouse is under the sole, equal or joint control of the debtor or otherwise is liable for the debts of both the debtor and non-debtor spouse under state law, then the such property becomes part of the bankruptcy case whether or not both the husband and wife have filed a bankruptcy case.

The idea of community property and community claim can cut both ways.  While community property of a non-filing debtor could be sold in bankruptcy to satisfy the claims of the debtor spouse, if there is no community property and the community claims of the non-debtor spouse are discharged in bankruptcy, the non-debtor spouse gets the benefit of the discharge even though he or she might never have filed a bankruptcy case.  In Wisconsin, this is sometimes referred to as the phantom discharge.

If you are a married person considering filing bankruptcy in Wisconsin or another community property state, be sure that your bankruptcy attorney is fully aware of the intricacy and nuances of community property law.  For more information about community property, community claims and Wisconsin law, click here.  Lakelaw represents people in Wisconsin bankruptcy cases.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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