Monthly Archives: February 2014

Can Just One Spouse File Bankruptcy In California?

By Ryan C. Wood

A common law marriage is when a couple holds themselves out to be married but the spouses did not actually have a marriage ceremony or go through any of the formalities of a marriage. You need to obtain a marriage certificate. California does not recognize common law marriages. There are other states that do recognize some form of common law marriage, but California is not one of those states. The types of marriages that are currently recognized in California are 1) traditional marriage, 2) domestic partnership, and 3) same sex marriage.

California is a community property state, which means that all assets accumulated during marriage (whether it is a traditional marriage, domestic partnership or same sex marriage) are considered property jointly owned by both spouses even if only one spouse purchased or earned that asset (unless that asset was obtained by gift, inheritance or devise or a prenuptial was executed). The separate property of either spouse is not liable for the debts incurred by the community.

So what does this mean if you are filing bankruptcy? When you file for bankruptcy you need to list all assets owned personally by you and also all community property assets if you are filing bankruptcy without your spouse. A lot of our clients think that just because they are filing bankruptcy by themselves they only need to list their own assets and their own income on their bankruptcy petition. This is not true and that can get you in trouble if you do not tell your bankruptcy attorney about all of the assets that are owned by both you and your spouse. Your spouse’s assets can be subject to liquidation if you file a Chapter 7 bankruptcy case unless your bankruptcy lawyer protects those assets by properly exempting them in your bankruptcy schedules. Since California is a community property state that means you need to list joint assets and household income and expenses. The theory behind this is that when you are married everything is joined together and owned fifty-fifty. Even if one party makes $1,000 a month and the other party makes $10,000 a month both parties join their incomes together to pay household expenses and for the benefit of the community.

On the flip side if you are not married but are living together with your significant other you do not need to list any of your significant other’s assets in your bankruptcy petition since it is not considered community property. Your assets are only considered community property if there was a legal marriage and California does not recognize common law marriages. This also means that your creditors will not be able to go after your significant other’s assets even if you have lived together for 10 plus years. There are always exceptions to the general rule of course but if your case is more complicated I recommend that you seek the services of an experienced bankruptcy attorney to discuss your case.

Chapter 7 Trustees Can Demand Turnover of Property No Longer in a Party’s Possession

By Ryan C. Wood

The Ninth Circuit Court of Appeals recently decided a case that has very troubling results for bankruptcy filers. In Shapiro v. Henson (In re Henson), No. 11-16019 (9th Cir. Jan. 9, 2014), the court held that bankruptcy trustees have the power to recover bankruptcy estate property and the trustee’s power is not restricted to just property of the bankruptcy estate at the time the motion for turnover is filed.

In the Henson case, Barbara Henson filed for Chapter 7 bankruptcy protection with $6,955.19 in her checking account. She also wrote several checks that had not cleared her checking account yet on the day she filed. The checks did not clear her bank account until sometime after her bankruptcy petition was filed. Brian Shapiro (the bankruptcy trustee in the case) demanded Ms. Henson turnover all the funds in her checking account to him except for the $800 that was exempted/protected. Ms. Henson refused to turn over the funds because she indicated the checks were now cleared and the funds were no longer in her possession for her to turnover. One of the checks was written out to her bankruptcy lawyer for fees related to her bankruptcy case. The trustee deducted that amount from the amount Ms. Henson owed and instead went after the bankruptcy attorney directly to get the funds back. The trustee filed a motion to turnover the remaining funds under §542(a) but the bankruptcy court denied the trustee’s motion because Ms. Henson did not have possession of the funds at the time the motion was filed. The trustee appealed this decision to the U.S. District Court, District of Nevada. The result was the same as the bankruptcy court’s decision so the trustee appealed that decision yet again to the Ninth Circuit Court of Appeals.

Under 11 U.S.C. §542(a), an entity that is in possession, custody, or control of the bankruptcy estate property or property that may be exempted, during the case, needs to deliver the property or value of the property to the trustee. The Ninth Circuit ruled in favor of the trustee, stating that the trustee may request for a turnover of the property against an entity that has or had possession of the property at any time during the bankruptcy case even if they no longer have possession of the property at the time the motion for turnover is filed. If the entity cannot turn over the property because it is no longer in the entity’s possession, the entity may turnover the value of such property. Therefore, Ms. Henson may need to turnover property that is not part of the bankruptcy estate (post-petition funds earned) to the trustee to satisfy the motion for turnover. This results in Ms. Henson having to pay twice for the same thing: once when she wrote checks for her bills prior to filing for bankruptcy but cleared out of her bank account after her filing and the second time is when she has to pay the trustee the amount that was in her checking account at the time she filed for bankruptcy even if she no longer has those funds.

At the end of the day the lesson to be learned from this is to be sure to let your bankruptcy attorney know what checks you have outstanding at the time you file your bankruptcy case. Failure to do so may result in you having to pay your bills twice.