Bankruptcy Law In Texas

Community Property and Bankruptcy
Spouses filing for bankruptcy may either file a joint petition under Bankruptcy Code section 302(a), or file bankruptcy petitions separately. When spouses file a joint petition and the two bankruptcy estates are substantively consolidated under section 302(b), community property does not pose much of a problem, because creditors may file claims against all of the community property and any separate property of either spouse. Issues arise, however, where spouses file separate petitions or only one spouse files a petition. These issues include, for example, what property is included in the estate, whether to file a claim, how the automatic stay applies, and what effect the discharge has.See, also, IRM 25.17.3.4.1.1. For purposes of this section, the spouse who files the bankruptcy petition is referred to as the "debtor spouse," and the spouse who has not filed the petition is referred to as the "nondebtor spouse."

Property of the Estate and Debts
Generally. The filing of a bankruptcy petition creates an estate that includes all of the debtor’s interest in property (except qualified pension plans). If the debtor is married, domiciled in a community property state, and files a joint petition with his or her spouse and the two estates are substantively consolidated, all of both spouses' property (including community property) is included in the estate. In this situation, there is nothing different about a bankruptcy filing in a community property state from any other state. If, however, only one spouse files the petition for bankruptcy, the effect of community property must be considered.

Filing By One Spouse, Assets Considered. Under the Bankruptcy Code, the bankruptcy estate includes the debtor spouse’s separate property and all community property that is under the sole, equal or joint management and control of the debtor spouse (as determined under state law). In addition, the bankruptcy estate includes community property to the extent that the property is liable for either an allowable claim against the debtor spouse, or a claim against both spouses. 11 U.S.C. § 541(a)(2); IRM 25.17.3.4.1.1(2). In most states, community property laws make all or part of community property held by either spouse liable for claims against only one of the spouses, so the property will probably be included in the estate up to the value of the claims. In addition, at least half of all community property is liable for federal tax obligations. In Re Ackerman, 424 F.2d 1148 (9th Cir. 1970); In Re Overman, 424 F.2d 1142 (9th Cir. 1970); and Broday v. United States, 455 F.2d 1097 (5th Cir. 1972); See also IRM 25.18.4.2(2). The estate does not include the nondebtor spouse's separate property.

Chapter 13 Post-Petition Income. In a Chapter 13 case, the estate includes "property that the debtor acquires after the commencement of the case …" and "earnings from services performed by the debtor after the commencement of the case." 11 U.S.C. § 1306(a). Courts are split on whether this includes the nondebtor spouse's income earned after the commencement of the case. Compare In re Nahat, 278 B.R. 108 (N.D. Tex. 2002) and In re Harmon, 118 B.R. 68 (E.D. Mich. 1990) with In re White, 243 B.R. 498 (Bankr. N.D. Ala. 1999), In re Whitus, 240 B.R. 705 (Bankr. W.D. Tex. 1999) and In re Cardillo, 170 B.R. 490 (Bankr. D. N.H. 1994). Whether these earnings are included in the estate may affect whether a plan should be confirmed. If this issue arises, check with Counsel to determine the rule in your jurisdiction.

Automatic Stay
When a bankruptcy petition is filed, the automatic stay applies to prevent collection of prepetition debts against either the debtor or property of the estate. If the spouses file a joint petition, property of the estate includes each spouse's separate property and all of their community property. Thus, when a joint petition is filed, the automatic stay prevents collection action against either spouse or any of their community or separate property.

If only one spouse files the bankruptcy petition, the automatic stay still prevents any collection action against all or nearly all of the community property. This is because the stay prevents collection action against property of the estate. As previously discussed, the estate includes all community property that is under the sole, equal or joint management and control of the debtor spouse. It can also include community property under the management and control of nondebtor spouse. See IRM 25.18.4.11.1(2). Action against such property would be a violation of the automatic stay. The automatic stay could also apply to acts to collect income of the nondebtor spouse. See IRM 25.17.3.4.1.1(3); In re Passmore, 156 B.R. 595 (Bankr. E.D. Wis. 1993) (Holding that a garnishment of the nondebtor spouse's community property wages is a violation of the automatic stay). Because the nondebtor spouse's separate property is not part of the estate (see IRM 25.18.4.11.1(2)), the automatic stay does not apply to collection actions against this property. If there is a question regarding whether a proposed collection action is a violation of the automatic stay, Counsel should be contacted. 25.18.4.11.3  (02-15-2005)