Community Property And Bankruptcy

I am now not a legal professional, I am a judgment and debt referral professional (Judgment and Collection Agency Broker). This article is my opinion, based on my revel in California, and legal guidelines vary in every nation. If you ever want prison recommendation or a strategy to apply, please touch an attorney.

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What if one has had a judgment debtor, and their non-debtor partner filed for Chapter 7 no-asset Federal bankruptcy courtroom safety? What if simplest the non-debtor spouse filed for financial disaster, and the debtor-spouse did now not?

How can one get better a judgment towards the judgment debtor partner, whilst their non-debtor spouse filed for bankruptcy safety or has already discharged their debts in bankruptcy? How does this affect one trying to recover a judgment from the non-bankrupt debtor partner in a network property state?

 

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After the non-debtor spouse has commenced a financial disaster or has already discharged their debts; moves to fulfill the debtor spouse’s debt with community property is stayed (forbidden and illegal).

The debtor spouse’s sole and separate property typically challenges to levies to meet a judgment. However, one should be extra cautious not to violate a financial ruin court’s order and do their homework. With a small judgment, or while the debtor is and could continue to be negative, it might be first-rate to forestall analyzing here, and write off the judgment.

Bankruptcy live violations can result in dire penalties, so one needs to be careful to have sheriffs or marshals levy simplest non-stayed and/or non-dischargeable belongings. To be extra secure, one need to make double-positive which property are truly and legally available first. One of the quality ways to look before you soar is with a debtor examination (frequently with a record production request). This is carried out with the aid of scheduling and serving an OEX (Order to appear for EXamination) on the judgment debtor.

When a financial disaster is worried, it is a superb concept to first get permission from the bankruptcy court, before trying any enforcement or discovery movements in opposition to a debtor.

To help strategize what your first or subsequent recovery method ought to be, you could start via asking the financial disaster court docket for depart (permission from) their BK court, to can help you get a nation court issued OEX (Order to appear for EXamination), served on the judgment debtor, with the blanketed (at least in California) OEX lien towards most effective the debtor partner’s sole and separate assets.

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In many states, serving an OEX on a judgment debtor creates a lien towards their personal belongings. In California, serving an OEX on a judgment debtor partner creates a 1-12 month’s silent lien against the non-public (although no longer real-property based) and community assets shared with the aid of the opposite partner, if it isn’t stayed by way of a financial ruin protection.

The debtor and their partner have a one hundred percent indivisible hobby in the community property of the marital belongings, so long as they’re married to every any other. In a network assets kingdom, while one partner’s money owed end up discharged via a financial ruin, the community belongings that become received pre-petition (and generally pre-discharge), is proof against levy due to the “phantom discharge” created through modern laws. (I am not a legal professional.)

The word “phantom” inside the word “phantom discharge” way that in a community property nation, there may be a further financial disaster protection when one spouse files for bankruptcy protection, that can protect the property of the alternative debtor partner. Usually, “phantom discharges” arise best in community property states (currently Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and probably Wisconsin).

A phantom discharge occurs when private and real property-primarily based network belongings turn into immune from judgment enforcement towards a judgment debtor partner, because the non-debtor bankrupt partner owns a hundred percent and indivisible interest within the network property, and that partner’s indebtedness has been discharged.

A phantom discharge is an unearned defend against lenders for the community property belongings of both spouses in a married couple, even when best one spouse discharges their debts in bankruptcy. (See BK codes 11 US 541 and 11 US 524).

As lengthy as the couple stays married, the phantom discharge remains, which is mostly an extremely good injustice for judgment lenders of the (non-bankrupt) debtor partner.

If the married couple qualifying for a phantom discharge receives divorced, one should petition the circle of relatives courtroom to enjoin the dissolution lawsuits and levy the nonexempt part of the debtor spouse’s half of their marital estate, if any.

Only people or entities can get financial disaster discharges. Property isn’t always an entity, so it can not get a discharge. Sometimes a judgment debtor does no longer win in financial disaster court, and one or all, in their money owed are declared non-dischargeable.

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In maximum network property states; and in California, own family code segment 910 (a), specifies that the real and personal assets of the community estate can be used to fulfill the debts of both partner incurred in the course of or before marriage. This way that real or non-public property of the network estate may be used to pay a nondischargeable debt. This is the opposite of a phantom discharge, so lenders get a wide open course to all of the community property of the judgment debtor.