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Paul K, Esq.
Paul K, Esq., Attorney
Category: Bankruptcy Law
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Experience:  10 years Exp., Great customer service, Prompt responses.
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This question has to do with parties in a community property

Resolved Question:

This question has to do with parties in a community property state who divorce, and thereafter, one ex-spouse files bankruptcy. I have listed the facts, below:

1. Husband and wife live in a community property state;
2. During the marriage the wife opened a credit card account--husband was not on the account;
3. Husband and wife get divorced;
4. Husband was ordered to pay above-referenced credit card debt;
5. After the divorce, husband files bankruptcy (no filing by wife);
6. Husband lists above-referenced credit card debt on his bankruptcy schedules and the debt is discharged.

Since the credit card debt was a community property debt, how does one ex-spouse filing bankruptcy affect a creditor's ability to collect from the non-filing ex-spouse? Does the divorce change the nature of the debt, or is the non-filing wife still protected because the debt was incurrred in a community property state?
Submitted: 1 year ago.
Category: Bankruptcy Law
Expert:  Paul K, Esq. replied 1 year ago.

Paul K, Esq. :

Hello, my name is XXXXX XXXXX I would love to assist you. Give me a moment to research your issue and I will answer promptly.

Customer:

Thank you, Paul. Please take all the time you need.

Paul K, Esq. :

First, let me say that the debt is nondischargeable...unfortuantely or fortunately depending on which side you are on.

Paul K, Esq. :

Certain debts that are related to a divorce and that are included in the settlement are non-dischargeable automatically. It does not matter whether the person listed them or not, again fortunately for you or not.

Paul K, Esq. :

What this means is that the creditor can still sue both of them.

Paul K, Esq. :

The non-filing wife is still protected

Paul K, Esq. :

However, most credit card companies may not know or understand it, so they may try to collect from the wife and not the husband, thinking that it is discharged.

Paul K, Esq. :

Which side of this situation are you on?

Customer:

I'm a creditor.

Paul K, Esq. :

Ok, so as a creditor, you can sue this husband as it was non-dischargeable

Paul K, Esq. :





Discharge of Divorce Debts in Bankruptcy: The Timing of a Bankruptcy Petition - Before or After the Dissolution?
By Arthur W. Rummler


Questions abound as to bankruptcy as it relates to divorce. Most often, the questions involve whether a certain debt would be dischargeable by a client or the spouse. Lately, the questions surround the timing of filing a bankruptcy petition, and the all important question of whether attorney fees can be discharged in bankruptcy. It seems that, for better or for worse, divorce and bankruptcy will be intertwined for eternity. Media reports confirm that divorce is actually the second leading cause of excessive debt accumulation.1 As such, divorce often leads to bankruptcy.


The Bankruptcy Code2 has several specific provisions that relate to family law and divorce issues. As with all things related to bankruptcy since the watershed year of 2005, the past laws were significantly affected by the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"). These broad changes expanded the law in some very important ways. This article focuses on the dischargeability of various divorce related debts in bankruptcy, including attorney fees, as well as the timing of filing a petition in bankruptcy for divorcing (or divorced) couples.



Understanding the Bankruptcy Discharge


The primary goal for most bankruptcy cases is the discharge of debt. The process begins when a debtor files a bankruptcy petition and fully discloses all assets and liabilities. Additionally, the debtor provides disclosure of certain financial information such as transfers of property, history and sources of income, lawsuits involving the debtor, and all other pertinent information that assists creditors and the bankruptcy trustee in analyzing the case. In exchange for compliance, and absent any other issues, a debtor typically receives a discharge of debts.


However, certain debts are not dischargeable under the Bankruptcy Code. With respect to divorce related debt, there are two specific provisions that apply. Under 11 U.S.C. Section 523(a)(5) certain "support" debts (payments) are non-dischargeable. Broader in scope and more comprehensive, 11 U.S.C., Section 523(a)(15) applies to debts incurred through the course of a divorce case.



Discharge of "Support" Payments


Simplicity is not often synonymous with the Bankruptcy Code. However, 11 U.S.C. Section 523(a)(5) perhaps is an exception. The section provides in pertinent part, that:


"(a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt . . . .(5) for a domestic support obligation;" (emphasis added) 3


The Bankruptcy Code defines Domestic Support Obligation at 11 U.S.C. 101(14A). That section provides:"The term "domestic support obligation" means a debt that


accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—


(A) owed to or recoverable by—


(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or


(ii) a governmental unit;


(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;


(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—


(i) a separation agreement, divorce decree, or property settlement agreement;


(ii) an order of a court of record; or


(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and


(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt." 4


That is a mouthful to say this: a bankruptcy debtor attempting to obtain a discharge of debt will be prohibited from discharging alimony or maintenance and child support payments.


What does a support recipient need to do to enforce this? Section 523(a)(5) applies to discharges under both Section 727 for Chapter 7 cases and Section 1328(b) for Chapter 13 cases. These types of debts are non-dischargeable automatically. A recipient of such payments who is a creditor in the bankruptcy case does not need to file suit within the bankruptcy case (known as an Adversary Proceeding) in order to preserve non-dischargeability.5 In short, the recipient needs to do nothing.


Paul K, Esq. :

This may help a bit.


 

Paul K, Esq. :

So you are in a good position, because you can go after wife AND husband.

Customer:

I know if the debt was incurred during the marriage (in a community property state), and a husband and wife are still married and only one spouse files bankruptcy, the debt itself is discharged as to the non-filing spouse.

Paul K, Esq. :

You can bring lawsuit against both and let them argue over who will pay.

Paul K, Esq. :

Community property states will not alter in this situation, most likely, because it is a per se non-dischargeable debt.

Paul K, Esq. :

Now, even f you go after the wife, she will have a cause of action against the husband for reimbursement, but neither of that matters to you.

Customer:

This does help a lot. I certainly appreciate your expertise and time. If you don't mind, I would like to request you in the future. Thank you.

Paul K, Esq. :

So your best course of action is to sue them both. That way one person has to pay. If you sue husband, he may say it was discharged and the court may be uneducated on BK law and agree.

Paul K, Esq. :

But if you sue both, the wife will bring in the divorce decree as a defense, thus having two people on your side, you and her.

Paul K, Esq. :

I greatly appreciate the compliment and definitely request me. Be sure to provide positive feedback in order to close out this session when you feel your questions are fully answered.


 


Have a great week and good luck!!!!

Paul K, Esq., Attorney
Category: Bankruptcy Law
Satisfied Customers: 141
Experience: 10 years Exp., Great customer service, Prompt responses.
Paul K, Esq. and 4 other Bankruptcy Law Specialists are ready to help you
Expert:  Paul K, Esq. replied 1 year ago.
I hope that I have fully answered your questions for you, but let me know if you have more or need my services again. I pride myself on provide prompt and accurate responses with excellent customer service as my top goal. If you need anything further please let me know.

Have a great week!!!

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