How Guarantors Can Escape Tax on Soured Debt

While the title indicates a strictly Texas issue, this outline begins with an excellent national discussion. Something you will probably want to archive in your memory bank for future reference.

Community property works differently in bankruptcy. I probably don’t have to tell you that. On the issue of assets and debts, community property is pretty straightforward. All of the community property comes into the estate upon the commencement of a bankruptcy case, even when only one spouse files. §541(a)(2). Every creditor with a right to be paid from the community can file a claim, regardless of which spouse incurred the debt. §101(7). So creditors of the nonfiling spouse are proper claimants in the filing spouse’s bankruptcy case. If the bankruptcy estate contains separate property as well, §726 creates a distribution scheme that segregates community assets from separate property assets in paying community and non community debts. So far pretty straightforward. Right?

Apparently, seventh time’s the harm. In this case, aggressive lawyering’ crosses the line.

Could it be that chapter 13 got it right? How does the recent United States Supreme Court holding in Harrington v. Purdue Pharma impact chapter 13 cases?

The initial meeting with a prospective bankruptcy client is the most important work I do as a bankruptcy lawyer. It’s also the hardest.