Los Angeles Bankruptcy Law Monitor : Los Angeles Bankruptcy Lawyer & Attorney : Christine Wilton Law Firm : Southern California Chapter 13 & Chapter 7 Bankruptcy, Foreclosure

Here's the case:

A debtor's discharge in bankruptcy would not do her much good if her prepetition creditors could still garnish her wages to pay their claims. The creditor in this case has a creative theory for doing just that: he argues that her discharge did not affect his claim against her husband, that her husband had an interest in her wages as community property, and that her husband fraudulently transferred that interest to her by entering into a postnuptial agreement. The creditor's fraudulent transfer claim, besides being untimely, is barred by [**2] Section 524(a)(3), n1 which enjoins holders of pre-petition community claims from collecting or recovering from community property acquired post-petition. Rooz v. Kimmel (In re Kimmel), 367 B.R. 166, 167 (Bankr. N.D. Cal. 2007)

11 U.S.C.S. § 524(a)(3) protects a discharged spouse in a community property state from any action, process, or act to collect or recover from, or offset against her wages on account of a Judgment against the other spouse. 11 U.S.C.S. § 524(a)(3). After-acquired community property will be free from prebankruptcy creditor claims against either spouse even when only one spouse has filed a bankruptcy case. California is community property state.

With every bit of good news comes a CAVEAT:  The Community Property discharge will protect the non-filing spouse so long as the spouses remain MARRIED. We all know that you can only file bankruptcy once every eight years.  Another benefit to having only one spouse file bankruptcy is that not only do you eliminate all the community's debts, your spouse can file bankruptcy at any time during the next eight years, should your financial situation worsen. 
 

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Married couples facing tough financial decisions must also face eachother. Here in California, we are in what is called a community property state.  That means that income earned during marriage and debts incurred during marriage are part of the marriage community. In contemplating bankruptcy, couples must know that the act of filing a bankruptcy case creates an estate for the purposes of liquidation under Chapter 7, or reorganization under Chatpers 13 or 11.

The bankruptcy estate consists of all the assets and debts of that estate.  So, your spouse's income, expenses and debts will come into the bankruptcy case even if they do not sign the bankruptcy papers. The bad news is that you're in this together. The good news is that you can also rebuild your credit quicker after bankruptcy.

Depending upon how the assets of your community estate are set up, will depend on how you should best proceed in bankruptcy. So, talk to your spouse first about your finances and set a goal for yourselves. Once you're teamed up and have your goal in mind, consult with your tax professional, financial planner and your local bankruptcy lawyer  to determine which direction is best for you.  There are many solutions to your current situation and the best strategy is to stay united and enlist help from several professional resources. Most professionals will consult with you for free, so take their advice and then make your decision from a well informed position.

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If you have ever found CNBC on television, they have this show called, Til Debt Do Us Part.  It's a great show where the host, Gail Vaz-Oxlade takes a tough love approach to helping couples get out of debt and on the road to financial recovery.  I would say that if your marriage can survive through these tough economic times, then you will make it through anything; together.

Unfortunately, with money being a primary motivator for divorce, many couples are faced with the decision as to whether to file for bankruptcy or divorce first.  My answer will always be on a case by case basis with couples.  I will always support couples to stay together and that money does not have to break a marriage apart.  However, some marriages may have needed  to be ended some time ago and a financial crisis may serve as the perfect issue to end the marriage with.

Because California is a community property state, all property acquired during marriage is community property, while property acquired before marriage or after permanent separation, or by gift or inheritance, is separate property.  The characterization of an asset as community property or separate property depends on three factors: (1) the source of the item; (2) action of the parties which may have altered the character of the item; (3) any statutory presumptions affecting the item.  This means, in general, is that all your assets and all your debts belong to the community and are shared equally between spouses.

So, if you're in a marriage that is facing insurmountable debts and you are trying to determine whether to file for divorce or bankruptcy first, then you will need to consult with your local bankruptcy lawyer.  Your local bankruptcy lawyer will conduct an extensive review of your marital assets and other information, to determine the right strategy for you.

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