Bankruptcy Filing For Married Couples

  • Couples

Effect of Individual Bankruptcy Filing For Married Couples

It isn’t uncommon that an individual encounters a bankruptcy condition. But the fact that in a marriage, when one of the individuals goes bankrupt, he/ she is wary of the situation and is perplexed as to the consequences of filing bankruptcy alone. A bank attorney will help you clarify your doubts, especially around the impact of filing bankruptcy on the other partner when one spouse want to file one.

The Bankruptcy estate – California

Being a community property state, California’s rules cover the assets that are acquired post marriage as the properties that belong to both the partners, irrespective of the title is done on one of their names. Hence whether the bankruptcy filing is done separately or jointly, the bankruptcy estate will cover all of the aforementioned community property of the married couples. Adhering to the laws of the community state of California, a lot of properties become part of the bankruptcy estate and will be subject to the norms of the bankruptcy law even if you file individually. Hence talk to an experienced bankruptcy attorney who can guide you from understanding the criteria for bankruptcy exemptions and how properties can be saved.

It is interesting to note that all separate properties belonging to your spouse (probably acquired prior to marriage) will not be a part of the bankruptcy estate. But it is imperative that those assets are mentioned in the documentation while you file for bankruptcy – the objective being that the trustee would certainly want to validate your claim that it is only an individual property and not a community property as per the state law.

Dischargeable debts – California

Filing for bankruptcy separately in California can relieve you of separate debts and you can get a discharge of the same. As a partner, you will also be free from the liability of joint debts since you have filed for bankruptcy. The laws of California community state forbid the creditors from pursuing the community property when one of the partners has filed for bankruptcy. The asset may also get discharged. But if the debtor who has originally filed for bankruptcy separates from his partner or dies, then the non-filing partner will lose this benefit in the long run. The creditors in such a scenario may be interested in the community property since the non-filing partner is now liable for the debt.

Effect of bankruptcy on the non-filing partner

  • There is no effect of bankruptcy on spouse’s credit report when one files for individual bankruptcy and even if there is a community property involved.
  • The income that is generated by both partners will be considered for the calculation of household income. This is the case when the eligibility is determined for Chapter 7 bankruptcy or for calculating the repayment terms for Chapter 13 bankruptcy

What is advisable in the state of California?

Considering the state of California, many assess the factors and consider the options of either filing jointly or separately for bankruptcy. Here’s a quick tip for them –

  • There are a lot of exemptions as per the state law if you choose to file a joint bankruptcy. In case you are unable to exempt your assets by filing individually, then it is wise to do a joint petition. An experienced attorney will help you with the exemption options prevalent in Los Angeles, California
  • Community properties are generally excluded from the reach of creditors and hence it may be sufficient if just one of considering filing for bankruptcy if there are community assets involved. By this, you may be able to keep the partner’s credit score unaffected
  • Also, assess several other factors prior to making the decision on an individual or joint filing. Some of them could be below
    1. List of all separate properties that you and your spouse own
    2. The income of both the partners
    3. A credit score of the partners
    4. List of all properties that are designated as community assets
    5. An impending purchase that can get declined if one files for a bankruptcy
    6. Amount of other debts and their types (secured / unsecured)
    7. Any specific issues that a bank attorney may uncover while assessing your case

Perform a detailed analysis with some professionals in this field. Recovery Law Group has a great team of attorneys who will analyze your conditions and recommend on the course of action needed in your bankruptcy situation or of your partner’s. They operate in Los Angeles, California, and Dallas, Texas.