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Bankruptcy in Brief
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Liability for debts incurred during marriage
The effect of the bankruptcy discharge on the debts accumulated during marriage is easily understood when both spouses file bankruptcy: each of them is released from personal liability for dischargeable marital debts. But when one spouse, or one's ex spouse, files bankruptcy, the result is more complex.
The Moran Law Group practices in California, a community property state, so this discussion is based on the family laws of California and may not apply to family law of other states.
Personal liability
Starting point in the analysis is to understand just who is "personally liable" for the debt in question.
Debts generally arise either by
contract (created by the agreement of the debtor and the creditor)
tort (arising by law from the negligent or intentional harmful act of the debtor); or by
statute (arising by operation of law, like taxes, or by court order, like family support).
If you are personally liable for a debt, the creditor can resort to property you own or your earnings to satisfy the debt. In addition to the personal liability of a married person in a community property state, the community property is liable for the debts of either spouse incurred during the marriage.
Community property generally includes real estate, tangible assets, and earnings of both spouses acquired during the marriage;
Community property does not include assets acquired by either spouse by gift or inheritance or assets owned before marriage.
Who is liable after divorce
When at divorce, the community property is divided between the spouses and becomes their separate property, there is no longer any community property for creditors of the marriage to look to. The liability question is then: is this individual, the former member of a marital community, personally liable for the debt in question?
In general, you are liable if you incurred the debt (bought goods on your credit card; signed the loan; incurred the debt in operation of your business; signed the tax return from which the tax liability arises, or caused the accident that injured someone.)
You are not usually personally liable for debts on your spouse's credit card (unless you signed the application, too); for your spouse's tort debts; or for your spouse's taxes if you did not file jointly.
Note that the family court can create personal liability for either spouse for a debt in the course of dividing the debts upon divorce.
Marital debts after a bankruptcy
The bankruptcy discharge affects the personal liability only of the debtor in the case.
When one spouse gets a discharge, the creditor can collect the debt from the non filing spouse, if that spouse is personally liable for the debt. If the spouses are still married, the creditor cannot, however, collect the debt from community property acquired after the bankruptcy was filed.
Note, too, that any provisions in agreements or court orders made in connection with the divorce requiring one spouse to indemnify (reimburse) the other spouse if third party creditors collect from the other spouse, is a debt that is potentially dischargeable in bankruptcy, too.
In a Chapter 7 case, the spouse benefitted by such an order can bring a non dischargeability action to except that obligation from the discharge under 11 U.S.C. 523 (a)15.
See contesting the discharge of debts arising in divorce.
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02/16/03