What Happens To Community Property Debt In An Individual Bankruptcy
Even if the reason you want to file bankruptcy is because of insurmountable separate property unsecured debts, you may still have community property debts that cant be excluded from your bankruptcy. For example, filing Chapter 7 bankruptcy wont erase the mortgage on your community property home. The balance for smaller secured community property debts, like cars, can be paid off in a Chapter 13 bankruptcy payment plan. But it can be more complicated if you discharge unsecured community property debts in an individual Chapter 7 bankruptcy.
If you file bankruptcy individually, community property debts will only be discharged in your name. If your spouse declines to join you in the bankruptcy filing, their separate property debts will not be discharged, and community property debts wont be discharged in their name. Because of the protections provided by the automatic stay, the creditors for community property debts may not pursue you or your spouse during your bankruptcy. However, the automatic stay will end when your case is discharged or dismissed, or even sooner under special circumstances. If you ever divorce in Phoenix, your community property creditors are likely to pursue your spouse for the debts discharged in your bankruptcy. Therefore, declaring bankruptcy in AZ can help you further understand how your individual bankruptcy will impact community debts.
If You Receive Support Payments
Under Canadas bankruptcy laws, going bankrupt doesnt release a debtor from an obligation to make spousal or child support payments. Your spouse must continue to pay any spousal or child support after being discharged from bankruptcy.
If your spouse still owes you for earlier support payments, you can make a claim for them as part of your spouses bankruptcy. The payments are a debt that is legally owed to you.
What Can I Do To Protect Myself If My Spouse Files For Bankruptcy
If a spouse files for bankruptcy, the non-filing spouse should consult with bankruptcy counsel to see if there will be any impact on them. While often there may not be any impact at all, in some circumstances, a filing spouses bankruptcy may prohibit a non-filer from proceeding with collection activity or undertaking other actions on the way to separation. There also may be impact if the non-filing spouse remains obligated on loans that the filing spouse has discharged. It is important to be mindful that even if an order in the divorce action requires one spouse to make the payments on a particular set of debts, the divorce order does not change the contractual obligations between the lender and the borrower. Even if one spouse is ordered to make all the payments in a given set of debts, the creditor could sue the other spouse if they were signed as the borrower on the loan or credit card.
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Why Are Collection Agencies Contacting Me And My Spouse
It is not uncommon for collection agencies to pursue both spouses, even though only one spouse owes them a debt. If you feel that their attempts to collect payment are only meant for your spouse, but are still addressed to you, there are some steps you should take in order to minimize the annoyance caused by them.
Your first step should be to request proof of responsibility for those debts, from the debt collectors that are contactingyou with collection demands. If the debt in question is solely in your spouses name, you can ask the collectors to stop.
If your spouse has already filed for bankruptcy, they should ask the bankruptcy court for an automatic stay. This will halt all collection activity. If after your spouse hasreceived their automatic stay, and the creditor is still contacting or harassing your spouse about the debt, they should notify the creditor that they have filed bankruptcy. They should tell them that all communications should be stopped.
If at that point the debt collectors continue to contact the non-filing spouse, the debt collectors may be in violation of the Federal Fair Debt Collection Practices Act or the state law that protects debtors. The FDCPA is a federal law that protects debtors from harassment, unfair debt collection practices, and threats from debt collectors. Local fair debt collection laws, such as Texas Fair Debt Collection Practices Act, may also provide debtors additional protections.
What Assets Are Exempt From Bankruptcy
You can keep some of your possessions when you file for bankruptcy. These assets are called bankruptcy exemptions because they are exempt from seizure.
When it comes to bankruptcy and assets, why are some assets exempt?
Bankruptcy allows an honest, but unfortunate debtor to get a fresh financial start. When you file for bankruptcy, you surrender most of your assets to your Licensed Insolvency Trustee. The Trustee then turns those assets into cash and distributes the money to your creditors.
However, to achieve a new start you need to keep some essential property. These essential assets are your bankruptcy exemptions, and are defined in the law.
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Spouses With Separate Households
You do not need to include your spouses income in the bankruptcy filing if you and your partner maintain separate households. Some couples support separate households. Sometimes couples have jobs in different locations. Other times, a separate residence is needed to ease marital tensions. Whatever the reason, if your marriage or partnership includes separate households, you do not need to include your spouses income when filing.
Community Property In A Bankruptcy Case
Even though Ellen doesn’t file for bankruptcy, all of the community propertyincluding her interest in the communitybecomes a part of the bankruptcy estate.
Because they’re in a community property state, community property that is not exempt could be seized by a trustee and sold to satisfy Mark’s creditors. If Ellen chooses to file for bankruptcy also, depending on the state she lives in, she could apply her own set of exemptions, which could effectively double the number of exemptions for the community.
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Premarital Debts And Bankruptcy
Many people have debts that they had before the marriage. A spouse is not liable for the other spouse’s premarital debts.
Your filing does not affect the other spouse’s obligation to pay debts they are liable on. In community property states, like Wisconsin, your bankruptcy leaves your spouse with any debt incurred during the marriage, unless the spouse also files.
You Will Be Discharged From Bankruptcy
A discharge releases you from the legal obligation to repay the debts you had as of the date you filed for bankruptcy, except for specific types of debts that are excluded by law. These include alimony and child support payments, , court-ordered fines or penalties, and debts arising from fraud.
The timing of your discharge depends on a number of factors, including whether this is your first bankruptcy, and whether you are required to make surplus income payments.
Timing of your discharge from bankruptcy
If this is your first bankruptcy and you are not required to make surplus income payments , you will be eligible for an automatic discharge from bankruptcy in nine months. If your surplus income is higher, your bankruptcy will be extended to 21 months and you will be required to make payments from your surplus income.
Your discharge from bankruptcy will happen automatically if
- the discharge is not opposed by the LIT, a creditor or the Office of the Superintendent of Bankruptcy
- you have attended the mandatory financial counselling sessions and
- this is your first or second bankruptcy.
To ensure that a greater percentage of debts is repaid to creditors, the following standards set out when an automatic discharge will occur.Timing of your discharge from bankruptcy , First Bankruptcy
|Surplus income is greater than $200 per month||36 months after filing|
I didnât get my discharge from bankruptcy. How do I obtain one?
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Does Filing For Bankruptcy In Canada Affect My Spouse
Filing for bankruptcy in Canada does not directly affect your spouse. Your debts are your debts only you are responsible for them. If you go bankrupt, your debts are discharged. Your husband or wife or common-law spouse is NOT responsible for your debts.
Many people believe that because you are married, your spouse is automatically responsible for your debts. This is not true. Often collection agents, when they are trying to collect from you, tell you that if you dont pay they will get the money from your spouse. This is a collection agency scare tactic they can only go after you for your debts.
The only exception is if your spouse has co-signed or guaranteed your debt. For example, if you took out a loan and your spouse co-signed for it, it is also legally their loan. If you both have a credit card on the same account, the credit card debt legally belongs to both of you.
Remember, your spouse is liable for the debt, not because they are your spouse, but because they have signed for the debt.
There may be an indirect impact on your spouse in the future if you try to obtain financing jointly As you rebuild your credit, you might not be eligible to co-sign a loan or obtain credit. Or, you may be subject to higher interest rates. This may affect your spouse if you jointly wish to apply for credit in your future.
These issues are complicated. It is often difficult to determine if a credit card is a joint card, or just a supplementary card.
What Will Happen To Our Property
If your spouse goes bankrupt, generally speaking, your property should not be affected. The general rule of thumb is if you have no interest in the property, do not own any of it, then the property is not at risk in any way. If you are not sure if you have an interest then you may need to check with a solicitor before going bankrupt.
There may be a couple of situations where the OR may be interested in your property:
- If the bankruptee is deemed to have a beneficial interest in the property
- The property you live in has some equity. A certain share of that belongs to your bankrupt spouse . In this case, the OR could ask you to buy your spouse out of the property. Then give that money to them. You will then fully own the property.
If your property is in negative equity, it could be that the OR will revisit it in a few years . They could also completely discharge your spouses interest in the property. This means your spouses share and ownership in the property will revert back to you. You will be forced to sell your property if you can not afford to buy out your spouses share. Your share of the property will not be affected.
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An Expert Tip From Erik
When you file individually in a community property state like California, a lot more property becomes part of the bankruptcy estate and subject to bankruptcy law than would be the case if you filed individually in a common-law state. Your California bankruptcy lawyer can explain what property can be protected by bankruptcy exemptions.
Northwest Territories / Nunavut / Yukon Exempt Property
The above exemptions for the territories do not apply if:
- You are behind on child or spousal support payments.
- You have absconded or are about to abscond from the territories, leaving no spouse or family behind.
A Licensed Insolvency Trustees is your trusted resource for current information on insolvency solutions, and factors that may affect your specific situation. Contact a Licensed Trustee today. Your first appointment is free, and your discussion is confidential.
Find a local trustee that you can rely on. We have trustees everywhere from British Columbia to Ontarioand more.
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What If My Spouse Has A Supplementary Credit Card
Supplementary credit cards are very common among spouses.
A supplementary credit card has the same account number as the primary credit card. So, if your spouse has used a supplementary credit card with their name on it, they may be considered jointly responsible for all debts accumulated under that credit card account. One way to determine if your spouse is liable is to have your spouse call the credit card company and ask. If the credit card company says we are not authorized to speak to you because this isnt your credit card then you can be reasonably ascertain that your spouse is not liable for the card. If the credit card company will speak to your spouse, it is likely that they are liable for the full balance owing on the card if you declare bankruptcy.
Can I File A Bankruptcy Without My Spouse
The short answer is, yes. If one spouse is carrying debt or the majority of the debt, that spouse may be desirous of filing a Chapter 7 or Chapter 13 Bankruptcy. A Bankruptcy filing is associated with a social security number and although only the filing partys social security number will be listed and associated with the filing, there is other information that is gathered from the non-filing spouse.
Bankruptcy involves household income and household expenses. In most cases, for bankruptcy purposes, if a married couple resides together both of their incomes and expenses would be taken into consideration to determine what chapter of bankruptcy would be best, even though only one party is filing.
Another common question relating to one spouse filing bankruptcy is whether the non-filing spouses assets, such as their car or real estate are protected. Any assets that are solely the assets of the non-filing spouse are not part of the bankruptcy estate and therefore are not made part of the Bankruptcy proceedings. Accordingly, the non-filing spouses assets are deemed to be outside of the bankruptcy proceedings.
If the asset are owned jointly, a bankruptcy attorney will value the asset and determine the filing partys equity interest in the subject property. If the share of the asset is greater than the protections allowed by law, the asset is not forgiven, rather the debt would be repaid through a Chapter 13 payment plan over 3-5 years.
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What Are The Income Rules That Apply To Non
Most people prefer filing for Chapter 7 since debtors quickly erase qualifying debt without a repayment plan. However, for a couple, it may be difficult to meet the income requirement since theyll be required to declare the income of both spouses.
The following exceptions can be used to reduce a non-filing spouses income:
For a couple living separately, therell be no need to include the income of the non-filing spouse.
- Legal separation
When youre legally separated, you wont need to include the non-filing spouses income.
My Spouse Is Bankrupt Will This Affect My Credit Rating
This may have some effect on you if you have joint bills/accounts with your spouse as you will be financially connected. If you apply for any new credit in joint names within the next 6 years, you will probably find that you are declined as your spouses for the next 6 years. For more information on what affects your credit rating, please see our article on what can affect your credit rating.
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Gifting And Selling Items Of Value To Your Spouse During Bankruptcy
Its important to note that you must not give or sell any items of value to your spouse to leave them out of the bankruptcy. This is bankruptcy fraud and is an offence. If you are caught doing this you could be fined or even sent to prison and the bankruptcy restrictions that last for the 12 month period of the bankruptcy could be extended for up to 15 years.
Community Property State Vs A Common Law State
Whether you live in a community property stateproperty acquired during the marriage belongs to both memberscan affect how the bankruptcy is conducted. If you and your spouse live in a community property state, your property is a separate entity called the community.
You can own property separately that you brought into the marriage, or that you were given or bequeathed in your name only during the marriage. However, most property acquired during the marriage is considered property of the community.
These details affect what property becomes part of the bankruptcy estate, whether the trustee can take the property to pay creditors, which debts will be discharged, and who gets the benefit of the discharge.
The list of states that recognize community property is relatively short. The rest of the U.S. states are common law states, where property acquired during the marriage solely belongs to the person who bought it. The following are community property states:
Going back to our example, because Mark and Ellen live in Texas, a community property state, all of the property they’ve acquired since they married is part of the community. That includes their home, their cars , and even the income from their jobs.
Alaska is technically not a community property state, but married residents can opt into treating their assets as community property.
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