Spouses don’t must file chapter collectively. Usually there are strategic causes for just one partner in a neighborhood property state like California to file.

So, the place does that depart the non-filing partner when collectors come calling?

Neighborhood property in chapter

Central to this dialogue is the way in which the Chapter Code treats neighborhood property. When somebody with neighborhood property recordsdata chapter, all the marital neighborhood’s property turns into “property of the property”.

Likewise, all collectors who may fulfill their claims from the neighborhood can file claims within the chapter, no matter which partner incurred the debt. So, the issuer of the non submitting partner’s bank card can file a declare within the chapter of the partner who filed for aid.

The flip facet of that coin is that the chapter discharge granted to the submitting partner exonerates not solely the filer’s private legal responsibility on money owed, but additionally the legal responsibility of any future-acquired neighborhood property for the money owed of both partner included within the chapter.

Because of this, the bank card firm with the declare towards the non-filer is barred from accumulating its debt from the couple’s future wages, actual property, or monetary property.

Fairly highly effective, proper?

Non-filer’s safety has limits

The keep

The automated keep protects the debtor and the debtor’s property when a chapter is filed. It stops any pending litigation or assortment motion towards the debtor or the neighborhood property. Importantly, it doesn’t cease a lawsuit towards the non submitting partner or assortment of the non-filer’s money owed from any separate property that the non submitting partner owns.

Separate property is property that an individual owned earlier than marriage, or acquired throughout marriage by reward or inheritance. In California, simply holding property within the title of 1 partner doesn’t make it separate property; within the absence of a pre nuptial settlement or a legitimate transmutation settlement, it’s nonetheless neighborhood property if acquired throughout marriage.

The discharge

A partner’s discharge in chapter protects that particular person from dischargeable money owed current when the chapter was filed. It’s private to the filer. So collectors of the non-filing partner stay free to sue the non-filer on money owed incurred earlier than the chapter.

The tough half is accumulating on any judgment obtained. The legal responsibility of the couple’s neighborhood property was worn out. Any creditor motion that creates a judgment lien on the neighborhood property violates the discharge injunction. So, collectors who document a judgment lien as they’d often do, accomplish that at their peril.

Importantly, the safety of the neighborhood property discharge ends when the neighborhood ends. Loss of life of the partner with the discharge or divorce terminates the neighborhood. The non-filer’s property are as soon as once more separate property, accountable for the non-filer’s money owed.

Collectors don’t perceive the neighborhood property discharge

Whereas the authorized safety of a partner’s discharge is broad, most collectors and their collectors haven’t a clue. Sometimes, they’re flabbergasted {that a} partner’s chapter submitting impacts the non submitting partner in any respect.

So, whereas the safety of the neighborhood property discharge is efficient, the discharge doesn’t carry the identical absolute proper to be freed from post-discharge assortment efforts.

Limits on future filings

Even much less effectively understood is the flexibility of collectors to problem the appropriate of the submitting partner to get a neighborhood property discharge. The truth is, in 42 years of observe, I’ve by no means seen this occur, however the legislation exists, nonetheless.

Chapter Code 524(b) gives that the neighborhood doesn’t get a discharge if the debtor’s partner was denied a discharge in a chapter case filed inside 6 years of the current submitting, or, wouldn’t be granted a discharge in a hypothetical case filed on the identical date because the pending case.

Nevertheless, to invoke this limitation, a creditor must file a problem to the neighborhood property discharge in the identical method as if contesting the appropriate of the debtor to a discharge.

Non-filer with non-dischargeable money owed

The Chapter Code has an identical process to restrict the neighborhood property discharge when the non-filer has a neighborhood debt that may not be dischargeable in a case filed by the non-filer. A creditor with a probably non-dischargeable declare towards the non-filer should carry an adversary continuing to determine that non-dischargeability within the chapter case of the harmless partner.

The time restrict for bringing such challenges is brief: sometimes 60 days after the primary assembly of collectors. Once more, it appears counter intuitive to sue within the harmless partner’s case to determine the dangerous deeds of a partner who isn’t in chapter, however that’s the legislation.

A chapter commentator famously stated that the Satan Incarnate may get a chapter discharge if he was married to Snow White. I’ll add to that “provided that the collectors are asleep on the change” in Snow White’s chapter case.