11 Us 524 And Community Property Assets
I am not an attorney, I am a judgment and debt matchmaking expert (Judgment and Collection Agency Broker)
. This article is my opinion, based on my experience in California, and laws are different in each state. If you need a strategy to use or legal advice, please contact an attorney. What if one has a judgment debtor, whose non-debtor spouse filed for Chapter 7 Federal BK court protection? What if just the non-debtor spouse filed for bankruptcy, and the debtor-spouse didn't?
How can one enforce a judgment against the judgment debtor spouse, if their non-debtor spouse filed for bankruptcy protection, or has already discharged their debts in bankruptcy? How could this interfere with one trying to recover a judgment from the non-bankrupt community property state-based debtor spouse?
After the non-debtor spouse has initiated a bankruptcy, or has previously discharged their debts; actions to satisfy the judgment debtor spouse's debt using community property becomes stayed (illegal and forbidden).
The judgment debtor spouse's sole and separate property is usually available for levies to pay off a judgment. However, one must stay extra careful never to violate a bankruptcy court's order, and do the homework. On a tiny judgment, or when the judgment debtor is and will stay broke, it might be best to give up, and write off the judgment.
BK stay violations may result in severe penalties, so one must be careful to instruct sheriffs or marshals levy only non-dischargeable and/or non-stayed assets. For extra safety, oneshould make double-sure which assets are actually and legally available first. A good way to look before you leap, is with a debtor examination (often with a request for document production). This is accomplished by scheduling and serving an OEX (Order to appear for EXamination) on the judgment debtor.
When BK is involved, it is a very good idea to first get permission from the BK court, before attempting any recovery or discovery actions on a judgment debtor.
To help strategize what one's current or future recovery tactic could be, one could start by requesting of the bankruptcy court for leave (permission from) their BK court, to permit you to buy a state court issued OEX (Order to appear for EXamination), served on the judgment debtor, with the included (at least in California) OEX lien against just the debtor spouse's sole and separate property.
In many states, having an OEX served on the judgment debtor starts a lien against their personal property assets. In California, service of an OEX on a debtor spouse creates a one-year silent lien against the personal (although not real-estate based) and community property shared by their other spouse, if it isn't stayed by a BK protection.
The debtor and their spouse have a one hundred percent undivided interest in the community property of the marital assets, as long as they are married to one another. In a community property state, when one spouse's debts are discharged by a BK, the community property that was acquired pre-petition (and usually pre-discharge), is immune to garnishment because of a "phantom discharge" created by current law. (I am not a lawyer.)
The word "phantom" in the phrase "phantom discharge" means that in a community property state, there can be an extra BK protection after one spouse files for BK protection, which may protect the assets of the other debtor spouse. Usually, "phantom discharges" happen only in community property states (currently Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and perhaps Wisconsin).
A phantom discharge can happen when personal and real estate-based community property becomes immune from judgment enforcement against a judgment debtor spouse, because the non-debtor bankrupt spouse owns a one hundred percent and undivided interest in the community property estate, and that spouse's debts have been discharged.
A phantom discharge is an undeserved shield from creditors for the community property assets of both spouses in a married couple, even when only one spouse discharged their debts in BK. (See BK codes 11 US 541 and 11 US 524).
While the couple remains married, the phantom discharge remains, which is often a huge injustice for judgment creditors of the (non-BK) judgment debtor spouse.
If the married couple benefitting from a phantom discharge becomes divorced, you can petition the family court to enjoin the divorce proceedings, and garnish the nonexempt portion of the judgment debtor spouse's half of their marital estate, if any.
Only people or entities may get bankruptcy discharges. Property is not an entity, so it cannot get a discharge. Sometimes a debtor does not win in BK court, and one or all, of their debts are declared non-dischargeable.
In most community property states; and in California, family code section 910 (a), mandates that the real and personal property of the community estate may be used to satisfy the debts of either spouse incurred during or before marriage. This means that personal or real property of the community estate may be used to pay a non-dischargeable debt. This is the opposite of a phantom discharge, so creditors get a wide open path to all of the community assets of the judgment debtor.
by: Mark Shapiro
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