One of many nice mysteries of debtor/creditor legislation is the group property discharge in chapter.
When just one partner information chapter in a group property state like California, the non submitting partner reaps bunches of advantages that collectors can’t think about.
Advantages that aren’t explicitly described in books about chapter or understood by collectors.
These advantages begin with the non filer’s wages being completely protected after chapter from that particular person’s money owed present when the case was filed.
How can that be? annoyed collectors shriek.
It’s group property legislation, is the reply.
The phantom discharge works like this.
When one partner information chapter
File chapter in a group property state and all of a pair’s group property turns into property of the property. And, the entire collectors who’ve claims that may be collected from the group property are collectors within the chapter case.
So, if Jane information chapter, and her husband Joe doesn’t be a part of the case, Joe’s collectors who’ve a declare on the couple’s group property can take part within the case.
All collectors of both partner can acquire their declare from group property.
I say “can“, however that’s a stretch. Joe’s creditor doesn’t actually get a selection about whether or not they’re affected by Jane’s chapter. In the event that they get discover of the chapter submitting, they’re sure by the result of the case.
On the finish of Jane’s chapter, her discharge eliminates all of her legal responsibility for her dischargeable money owed. And the discharge eliminates any declare that listed collectors of Joe need to the couple’s group property.
Jane’s discharge protects not solely the couple’s group property that exists when the chapter is filed. It additionally protects any group property that they purchase any time sooner or later.
So, Joe’s collectors are actually hamstrung. Their claims can solely be collected sooner or later from Joe’s separate property.
Magic.
Good magic in case you are Joe; unhealthy magic in case you are Joe’s creditor.
What the discharge doesn’t do
Whereas the group property discharge limits what Joe’s collectors can do, the discharge doesn’t wipe out Joe’s private legal responsibility for his money owed.
He nonetheless owes the money owed. These money owed might be collected from any separate property he has. That separate property may be
- property he had earlier than marriage;
- wealth he inherits; or
- items he receives.
If Joe doesn’t pay on the money owed for which he’s liable, his collectors can nonetheless sue him.
They’ll get a judgment. They’ll haul him in for a debtor’s examination.
They’ll report the debt as delinquent.
They only can’t levy, lien or garnish his wages or different property he and Jane purchase as group property.
It will probably get messy.
Because it’s solely the group property of the wedding that’s protected by Jane’s discharge, the safety doesn’t survive the top of the wedding, both.
If Joe is widowed or divorces, his earnings change into separate property.
A nasty quirk is that any group property that Joe acquires in a brand new marriage is answerable for the money owed he has that preexist the brand new relationship. Ouch.
Causes to not file chapter
Typically, one partner opts to not take part a chapter due to employment issues, both a place the place chapter appears inconsistent with the job description.
Or the money owed in that partner’s title are fewer.
Or they hope to carry on to a bank card that’s vital for work.
Or the couple hopes to make use of the non filer’s credit score for some vital function within the close to time period.
The family funds can be drastically improved by eliminating the collectors who can garnish the group property.
Every particular person is meant to have their very own file with the credit score reporting companies. Thus a chapter of your partner ought to solely be famous in your credit score report in case you had joint debt.
The take-away right here is that the submit chapter terrain for a married couple the place just one information for chapter is uneven.
How effectively the group property discharge works will depend on what the non filer hoped to attain by not submitting. And the way diligently the non filer asserts the advantages bestowed by the group property discharge.
Extra on group property
Ideas of California group property
Chapter and the division of group property in divorce
Picture courtesy of wikimedia.
