Community Property States
In a community property state, all property that you acquired during the marriage is considered jointly owned, or marital property. Any property you owned individually before the marriage, or property that was a gift or inheritance during the marriage, is separately owned. You must include all property in which you have an interest -- including marital property -- in the bankruptcy estate. In a Chapter 7 case, the estate is subject to seizure and liquidation by the bankruptcy trustee. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In Alaska, a couple may establish a community-property marriage by signing an agreement.
Common-Law Property States
In a common-law property state, property that you own individually remains your sole property, even if you acquired the property while married. Your spouse's individual property, as in a community property state, remains outside of the bankruptcy estate. Property owned jointly is included in the estate. In community and common-law property states, federal and state laws govern which property is exempt, meaning it can't be seized. In some states, you must choose the state exemptions, while in others you may choose either state or federal.
The court has the authority to determine what property is separate or marital -- in most marriages, the legal owner of property, such as cash in a bank account, is often difficult to determine. The Chapter 7 bankruptcy trustee has the authority to seize and liquidate property that is not exempt under the law. However, he must reimburse your spouse for half of the value if he takes this step. Your spouse can argue that the loss of the property would be a serious financial detriment or create an unjustified financial hardship, and request a court hearing if the matter can't be settled.
Discharge of Debts
An individual bankruptcy will end with a discharge, or cancellation, of all debts. This does not include certain protected creditors, such as the IRS, state taxes, federally guaranteed student loans and child support agencies. If you are married, any debts held jointly are discharged only for the bankruptcy petitioner, not for the spouse; the spouse's obligation to repay his share of the debt survives, even if your portion of the debt is discharged through the bankruptcy proceeding.