Saying “I Do” on your wedding day doesn’t just mean you accept all of the good things that come along. In sickness and in health could also refer to the financial wellbeing of the happy couple.
For a couple in financial straits, bankruptcy can offer an escape from suffocating debt. But what if only one member of the union is battling money issues? Can a spouse file bankruptcy alone? Can one partner file for bankruptcy while the other avoids it?
Can a Spouse File Bankruptcy Alone?
The answer is yes, a spouse can file bankruptcy alone, but the best option depends on how much the couple owns together and separately.
California Is a Community Property State
One of the biggest factors in your and your spouse’s decision will be where you live. California is a community property state (as opposed to a common-law state). In California, spouses jointly own most property obtained during the marriage. This holds true even when only one spouse’s name is on the title.
Many of the assets that couples share are vulnerable when a property is sold off to pay debtors. You and your partner will need to make sure you have enough exemptions to protect the most important possessions you share.
Even when you aren’t part of the bankruptcy, when you own personal property that isn’t up for grabs, those possessions are still listed in a bankruptcy petition. This is to make sure the court categorizes it properly and doesn’t attempt to liquidate your assets.
Reasons for a Spouse to File Individually
If one spouse carries most of the debt, it may make sense to keep the other partner out of the bankruptcy proceedings. This is the best idea when a few of these things are true of your financial situation:
- One partner carries all of the debt.
- A spouse has more debt that’s not dischargeable.
- The non-filing spouse wants to protect assets he or she owns.
- One partner is planning on making a big financial investment like buying a home, a car, or starting a business. It could make sense to leave the buyer out of bankruptcy.
- A spouse has already filed bankruptcy in the past 8 years.
- A spouse has an unblemished credit record.
- Filing as a couple in California generally doesn’t earn filers a double exemption to help protect some assets. There’s no benefit to joint filing as far as exemptions go.
Marriage is a partnership and having one partner left with good credit and free of bankruptcy restrictions can be beneficial for both sides.
Reasons to File for Bankruptcy as a Couple
When spouses share much of the same debt, filing bankruptcy as a couple is often the best choice. One partner may file and receive a discharge from much of the debt involved, but when the other partner isn’t part of the discharge, he or she might still have to pay portions of that debt. Those outstanding debts can include charges on jointly held credit cards.
The non-filing spouse could also end up with damaged credit even if they are kept out of the bankruptcy proceedings. Once a partner earns a discharge of debt, it can show up on your credit report. You’d face some of the negative aspects of bankruptcy, like a lower credit score, without enjoying any of the debt relief.
Other Bankruptcy Benefits for Married Couples
Filing together as a family can also save couples on filing fees and attorney costs. Couples who end up both having to file for bankruptcy separately, that’s double the fees.
Those costs include the two debtor education courses required to complete bankruptcy. Couples can take these courses together and avoid having to pay for two extra classes. A joint filing can also mean less paperwork, which is always a plus.
Both partners also benefit from the automatic stay granted during bankruptcy proceedings. The automatic stay keeps creditors from harassing debtors about what they owe or seizing assets. If only one spouse files, creditors may target the spouse that’s not protected by bankruptcy benefits.
Reporting a Husband or Wife’s Income in Bankruptcy
In a joint filing, both partners include their income on a bankruptcy petition. If you file individually, your spouse’s income will still get included with your paperwork.
This income can make a difference in your ability to pass the “means” test that proves you don’t make too much money to file for Chapter 7 bankruptcy. You and your spouse could earn too much income and be forced to file for Chapter 13 bankruptcy. In this case, you’d have to repay more of your debt over a three to a five-year payment plan.
Can I Hide a Bankruptcy from My Husband or Wife?
Not likely. You can’t hide a bankruptcy from your spouse when you own assets with him or her or have joint debt. Your partner will receive some sort of notification during bankruptcy court proceedings.
Even if you don’t share property or debt with your spouse, it’s still a bad idea to keep something so life-changing a secret. The bonds of matrimony extend to financial concerns.
Spouses deserve to know the truth about your money issues because it will eventually affect them. They will almost certainly find out at some point and the reaction to a revealed secret is often much worse than the reaction if they had been told the truth up front.
Contact a Bankruptcy Lawyer Serving Los Angeles
Couples join their fates in marriage to more easily meet life’s most difficult challenges. Those difficulties certainly include weathering financial storms. Facing money woes, you and your spouse may have to consider the relief that bankruptcy provides. Whether you file individually or as a couple, it’s good to know you don’t have to go through bankruptcy alone.
The bankruptcy attorneys with the Law Offices of Steers and Associates have the background in California bankruptcy law to help you and your spouse determine the best path forward for your family. We work with residents from all over Southern California and help them put together a successful bankruptcy petition. We want to see clients and their families emerge from bankruptcy as successfully as possible so they can get on with their lives.
When your family faces bankruptcy in Los Angeles or anywhere across Southern California please contact us as soon as possible. We offer a free and confidential consultation to anyone considering bankruptcy. Let us look over your portfolio so we can determine your best next step.
You can find our online guide to bankruptcy here: The Ultimate Guide to California Bankruptcy
Elena Steers is a highly experienced bankruptcy attorney, the founder of Law Offices of Steers & Associates, and previously worked as a Bankruptcy Trustee Assistant at the Office of the Chapter 13 Trustee in Los Angeles. Her current affiliations include the State Bar of California, National Association of Consumer Bankruptcy Attorneys, and Central District Consumer Bankruptcy Attorneys Association.