Bankruptcy and Community Property in Arizona
Many of our clients are married couples who incurred large amount of joint debts together over the course of their marriage. However, not all of them end up filing bankruptcy jointly. Indeed, you are allowed to file a bankruptcy petition individually, without involving your spouse. The advantages of doing so may include:
1) An individual filing may help to avoid a credit score impact on your non-filing spouse.
2) Arizona is one of the nine states adopting community property laws. Therefore, once you are successfully granted a discharge in bankruptcy, it will not just apply to your individual debts, but also the community debts incurred by both of you during the course of marriage.
3) Further, in Arizona, the bankruptcy estate would include not only your separate property, but also the community property (properties owned by both you and your non-filing spouse). Hence, once you file the bankruptcy petition, the Bankruptcy Automatic Stay Protection under 11 U.S.C. 362 would apply to stop debt collectors from collecting debts against the community property, even though your spouse has not done anything under the Bankruptcy Code.
4) The non-filing spouse’s separate properties should not be treated as part of the estate so, absent any other considerations such as a fraudulent transfer, the Bankruptcy Trustee cannot reach those properties for bankruptcy distribution purposes.
Note: For readers of this article, who are now living in or used to live in other U.S. states which adopt common law property laws (i.e. equitable distribution property laws), be aware that the laws will vary and so you should consult an attorney in your area.
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If you are located in Phoenix or the surrounding area,
Contact Wright Law Offices online or call 480-845-0145 to set up a free consultation. This article is not meant to be a substitute for legal advice from an attorney as every person’s situation is unique. It is important that you hire an attorney to help you avoid the many pitfalls that can occur in a bankruptcy.