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Community Property Discharge

Bankruptcy involves a complex interplay between federal and state law. Arizona follows a community property regime in how it treats property and debts accumulated during the course of marriage. In a community property jurisdiction, most property that either spouse acquires during the marriage is owned jointly with the notable exception of gifts or inheritances. The same is true of debts incurred in the course of a marriage, and both spouses are liable for each other's debts regardless of whose name is on the account.

Because of this, a married couple considering bankruptcy will typically decide to file a joint petition. The filing fee with the Bankruptcy Court for a joint petition is the same as it is for a single filer, and the attorney fee is typically less than it would cost to do separate bankruptcies for each spouse. And a joint petition, if successful, will discharge the liability of both spouses of all dischargeable community debt.

But sometimes only one spouse desires to file, and there are some good reasons for this. Perhaps the couple is newly married and most debts and property were acquired before the marriage. Or perhaps together the couple exceeds the Chapter 13 debt limits, but separately they will qualify. Occasionally it is important for one spouse to retain the ability to seek bankruptcy relief in the near future. Whatever the reason for filing separately, it is important to recognize the important protection the Bankruptcy Code and state law afford the non-filing spouse.

Section 524(a)(3) of the Bankruptcy Code provides that the discharge injunction extends to all community property acquired by either the filing or non-filing spouse after the commencement of the case. In many instances, this means that the non-filing spouse is essentially judgment proof by virtue of the filing spouse's discharge in the bankruptcy. But note that this section does not protect a non-filing spouse's separate property, if any should exist, nor does it serve to protect a non-filing spouse after dissolution of a marriage, whether by death or divorce. Additionally, a creditor may continue attempting to collect the debt from the non-filing spouse, although these attempts may well be fruitless.

These issues are often complicated and are best addressed with the help of an experienced bankruptcy attorney.

If you are having trouble managing your debts and think bankruptcy might be the answer contact the Law Offices of Jose A. Saldivar, P.C. today!

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