WHAT IS THE COMMUNITY DISCHARGE?

The entry of a discharge order under 11 U.S.C. § 727 gives rise to what is commonly known as the "discharge injunction". The discharge injunction is what gives the discharge its bite. It empowers the debtor to seek recourse against creditors who seek to collect on their pre-petition claims despite the entry of a discharge order. The entry of a discharge enjoins any creditor's effort to collect a discharged debt as a personal liability of the debtor. The discharge injunction is permanent and is always applicable with respect to every debt that was discharged.

Because the discharge relieves the debtor only of personal liability on pre-petition debts, are creditors then free to pursue their community claims against the non-filing spouse once the discharge is entered? Technically, yes. The means, however, by which creditors may collect on a community claim, is limited. While the term "community discharge" is commonly used in practice, it is a misnomer. The non-filing spouse does not actually receive a discharge; rather, the community property receives a discharge injunction. The discharge injunction creates a blanket injunction (analogous to the automatic stay) that prevents creditors holding a community claim from proceeding against after-acquired community property. Specifically, if one spouse has commenced a bankruptcy case in which no claim is excepted from the debtor's discharge under 11 U.S.C. § 523, and the non-filing spouse would not have had a claim excepted from his or her discharge in a hypothetical case commenced on the same day as the debtor's case, then creditors of either spouse holding community claims on the date of bankruptcy are thereafter barred from asserting these claims against after-acquired community property that otherwise would have been included in the bankruptcy estate, whether or not such property existed on the date of bankruptcy. In other words, after-acquired community property (such as earnings) will be free from pre-bankruptcy creditor claims against either spouse, even when only one spouse has filed a bankruptcy case, provided that neither spouse has committed an act creating a non-dischargeable debt or is barred from receiving a discharge. Thus, community claims can still be enforced against the non-filing spouse's separate property or pre-bankruptcy community assets that were not included in the debtor's bankruptcy estate. Accordingly, the community discharge has the positive result of giving the full effect of a discharge to a married person filing for bankruptcy in a community property state. Please contact us at www.shbllp.com or call us at 949-340-3400 to speak with one of our lawyers.

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