Certain assets cannot be liquidated by a bankruptcy court during the bankruptcy proceeding. Bankruptcy law stipulates certain exemptions to protect a debtor from losing certain assets. If an asset is exempt, it cannot be liquidated to compensate creditors. Non exempt assets can be sold off by the bankruptcy trustee to pay back creditors. Each state has its own bankruptcy exemptions, with varying specifics. Certain properties of non-debtor spouse and dependents are exempt from bankruptcy.
Whether or not the property of a non debtor spouse or dependents is exempt will vary depending on the property laws of each state. In community property states, all of the community property becomes property of the estate. In return, the community property acquired by a debtor and his non debtor spouse after the bankruptcy, is not liable for payment of community claims listed in the bankruptcy. Community property generally includes real estate, tangible assets, and earnings of both spouses acquired during the marriage. Community property does not include assets acquired by either spouse by gift or inheritance or assets owned before marriage.
A bankruptcy filing by one spouse does not bring the other spouse into bankruptcy. Neither does the bankruptcy of a spouse give the non filing spouse the full protection of the automatic stay or the bankruptcy discharge. When one spouse files bankruptcy in a community property state, the marital community enjoys the protection of the filing spouse’s bankruptcy discharge. Bankruptcy statutes provide that any community property that the filing spouse and the non filer acquire after the bankruptcy is protected from creditors of the non filer who held a claim against the non filing spouse as of the date of the filing.
A creditor with a claim against the non filing spouse can only collect its debt from the separate property of the non filing spouse. If you and your spouse are jointly liable to a creditor, the bankruptcy of one spouse does not relieve the other of paying the debt. Upon a bankruptcy, the creditor may look to the other spouse for payment, unless the bankruptcy case is under Chapter 13.
Bankruptcy uses the IRS definition for dependents. Generally dependants include children under the age of 19 years. The child must have lived with you for more than half of the year. Dependants also include other dependant family members who occupy the same housing unit. The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you, or (b) must live with you all year as a member of your household and your relationship must not violate local law. Moreover the dependant person’s gross income for the year must be less than $3,650 and you must provide more than half of the person’s total support for the year.