The bankruptcy trustee’s question to the debtor was jarring: “why didn’t your spouse file bankruptcy with you?”
For starters, it was the only “why” question in an entire calendar of debtor hearings.
Every other question began, “what”, or “do you have”, questions about assets and financial history.
This question asked for the motivation of another person, who isn’t here, and isn’t under oath.
As the debtor’s attorney, I stifled my inclination to say “what difference does WHY make”. (Actually my first thought was much pithier than that, and probably not appropriate for an attorney to say in public).
So, let’s look at the single spouse filing, and guess “why” the trustee asked that question.
Spouses can file bankruptcy alone
It’s absolutely uncontroverted that both spouses don’t have to join in bankruptcy filing.
The real deviation from the normal here is that a married couple can file a bankruptcy case together. § 302.
Just as importantly, spouses don’t have to file together.
Community property comes into bankruptcy
In a community property state like California, all of a married couple’s community property comes into the bankruptcy estate, even when only one spouse files.
That’s because all of the community property is liable for the debts of each spouse. Outside of bankruptcy, husband’s creditors can reach all of the community property to pay his debts.
That doesn’t change in bankruptcy.
So, as a matter of law, the trustee’s question makes little sense: regardless of the “why” the absent spouse didn’t file, the creditors still get access to the entirety of the community property.
Community property is poorly understood
The trustee may have tried, inartfully, to see if the debtor testifying before her understood community property.
Many Californians think, incorrectly, that buying an asset and putting it in one spouse’s name defeats the community property presumption. That presumption says: all property acquired during marriage is presumed to be community property.
And that presumption carries the day, regardless of which spouse’s name appears on the title.
The community property presumption can be overcome by following the rules of transmutation.
So, a legitimate trustee question might be: does your spouse have any property that you haven’t listed in your bankruptcy schedules. That might be a way to flush out whether there are assets missing from the schedules because the debtor thought the form of title prevailed over the community property presumption.
But asking “why” someone else acted a certain way is not a direct approach to the issue.
Some snark involved
In preparing clients for the first meeting of creditors, conducted by the trustee, I’ve offered clients a couple of possible responses to the “why” question.
Some of the possibilities include:
- You’d have to ask him
- Advice of counsel
- Concern about future credit
- Aversion to bankruptcy
- No need of discharge
But whatever your response, your answer to “why” doesn’t undermine your right to file alone.