In re Marriage of Walker

A marriage dissolution proceeding commences, one spouse is discharged from her debts by a bankruptcy court, a community property home subject to a secured home equity loan is sold, and the proceeds (beyond the amount needed to pay the secured lender) are available for distribution to the parties. Should the proceeds be distributed equally or is one spouse entitled to a greater share because of the bankruptcy discharge? The trial court awarded Cheryl A. Walker a larger share of the proceeds ($134,089.66) than her ex-husband, Roy M. Walker ($42,490.76), ruling that to do otherwise would enforce a discharged debt against Cheryl and thereby violate federal bankruptcy law.

We reverse. This case features a secured debt on an asset jointly owned by the parties, the sale of which resulted in substantial proceeds beyond the amount of the secured debt. Though a secured lender’s potential right to a deficiency judgment (i.e., in personam liability) can be discharged in bankruptcy, the lender’s lien on real property (i.e., in rem liability) is unaffected by a discharge in bankruptcy. Here, the lien was extinguished at closing by payment of the current amount owed on the loan, a…