Most people get married to share the good and the bad that come along with life. However, bankruptcy is one of those negatives that is sometimes best not to face together.
In California, you are allowed to file bankruptcy when you are married and can complete a joint filing with your partner or leave your spouse largely out of the proceedings. The choice on which path to take will largely depend on the type of debt causing your financial hardships.
Can You File Bankruptcy if You Are Married?
One of the biggest factors in determining if your partner should file for bankruptcy with you will be the type of debt you both owe. Is there joint debt or do you carry most of the debt yourself?
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Joint debt includes financial obligations you’ve made together. These are things like credit cards opened as a couple and bank loans with both your names on them. When your debt is mostly your own, it’s often better to leave your spouse off of a bankruptcy petition. They can often hold onto much of their property and avoid credit score damage.
When debt is jointly held, it might be dangerous to leave a spouse off your filing. You may receive shelter from creditors coming after what you owe and you should receive a discharge of that debt. However, when spouses don’t file, they are also responsible for the debt. They won’t receive the protection of your bankruptcy and can bear full responsibility for the same debt you’ve been freed from.
California’s Community Property Marriage Laws
In California, more debt may be jointly held between you and your spouse than you realize. California follows the legal concept of “community property” when considering assets and debt shared in a marriage.
This means spouses jointly own most property obtained during the marriage. Even possessions with just one name on the title are considered joint property or debt and could be lost in bankruptcy.
Community property rules can make it harder for you to separate your debt and possessions from your spouse’s assets. Many of the possessions couples share are vulnerable when assets get sold off to pay debtors. If there are joint assets you or your spouse don’t want to lose, you’ll need to make sure you have enough exemptions in bankruptcy to hold those out of the debt payment process.
Should I File Bankruptcy With My Spouse?
When considering community property statutes, you may find it’s best to file bankruptcy jointly. Spouses who have accumulated a lot of assets while married or a lot of debt should consider filing as a couple.
A joint bankruptcy means you’ll both enjoy the protection from creditors granted during the bankruptcy process. You’ll also both enjoy the discharge earned from qualifying debt when the bankruptcy is completed.
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When only one person files for bankruptcy, the non-filing spouse can end up without any of these benefits. In fact, your spouse may be targeted even more aggressively by creditors once you’ve been freed from the debts your partner is still liable for.
Filing together also makes filing for bankruptcy more economical. A joint bankruptcy allows you to both use the same bankruptcy attorney and saves you both on court filing fees.
Should I File Bankruptcy Without My Spouse?
Under certain circumstances, it’s advantageous to protect your spouse from your bankruptcy as much as possible.
Any of the following circumstances can make it beneficial to leave your spouse out of your bankruptcy:
- When the majority of the debt is in your name.
- When your spouse has more debt that’s not dischargeable. Bankruptcy only gets rid of certain types of debt and if your spouse carries debt that won’t be wiped clean, filing won’t offer much debt relief.
- When non-filing spouses want to protect property only in their names. These are often assets accumulated before the marriage. Filing for bankruptcy jointly may lead to these possessions being sold to pay creditors.
- When one spouse has a great credit record. Including your partner unnecessarily in your bankruptcy may hurt their financial standing.
- When one spouse can help the family recover from bankruptcy. Leaving your partner out of the filing can free them up to maintain a good credit rating and help you emerge from your bankruptcy. When one partner still has good credit, it’s possible to purchase a car, a home, or obtain a business loan.
How Should I Determine if I’ll File Bankruptcy Alone or Jointly?
Your bankruptcy attorney should play a major role in determining the best path for you and your partner when you are considering bankruptcy. It’s wise to seek help from a legal professional who knows the ins and outs of California bankruptcy law.
Before proceeding with your filing, take advantage of a free consultation with a bankruptcy expert to determine the exact best path for your family. That best option can depend on dozens of little factors you may not consider until you consult with an expert in California Bankruptcy law.
Bankruptcy may actually leave you in a worse financial situation and that’s something your attorney can help you quickly determine. There may be other options available to you that are right for your situation.
Chapter 7 Bankruptcy and Your Spouse
Your spouse’s income can affect your filing for Chapter 7 bankruptcy even if you file alone. To file for Chapter 7 relief, you’ll have to pass a “means test” to show the court you don’t make too much money to qualify for a discharge of debt.
If you filed bankruptcy for yourself while married, you’ll still be required to list your spouse’s income on this test. Your partner’s income may put your earnings too high to be able to file.
There is an exception called the “marriage adjustment.” Any assets your spouse brings in each month that isn’t used to support the household don’t factor into your means test.
Your spouse’s car payment, domestic support payments, and medical expenses can often be left out of the means test equation. This adjustment might drop you below the limit and allow you to file for Chapter 7 Bankruptcy.
Chapter 13 Bankruptcy and Your Spouse
If your family income prevents you from filing for Chapter 7 relief, a Chapter 13 bankruptcy may be your only option.
In Chapter 13 Bankruptcy you don’t get immediate relief from debt. You and your attorney would come up with a three to five-year plan to pay off a negotiated portion of your debt. If you complete the payment plan, you would receive a discharge on some of your remaining debt.
You may file for bankruptcy without your spouse. You don’t have to pass a means test, but if your spouse earns a significant income, that could increase the payments you are expected to pay towards your outstanding balances. The marriage adjustment could provide relief in this case as well. Those deductions from your total joint income could lower the payments you’d be expected to make.
Does My Spouse Have to Know About My Bankruptcy?
It may be difficult, but not impossible to keep your bankruptcy a secret from your spouse while you are completing the process. However, once you’ve completed your bankruptcy your spouse will likely see signs of what’s happened on a credit report or on correspondence sent from creditors and the court system.
When filing for bankruptcy you’ll need a lot of financial information from your spouse and that can be difficult to obtain without your partner’s help. Of course, a Chapter 13 filing may extend over years, making it even more unlikely that you’ll be able to keep your secret over the entire process.
It’s also a bad idea for your relationship. Hiding a major life development like this can quickly transform your money issues into relationship issues with your partner. You can double your trouble when you seek to conceal the truth.
Contact a Bankruptcy Lawyer Serving Couples in Southern California
If your family’s financial circumstances have fallen past the point of saving, it’s time to consider filing for bankruptcy. Deciding whether your bankruptcy should include your spouse or not depends on your situation and the options you have under California’s bankruptcy laws. Partners will want to support their spouses, but the best way to do that may be to sit on the sidelines during the bankruptcy process.
The bankruptcy attorneys with the Law Offices of Steers and Associates have an extensive background in helping couples make the right choice. No matter who ends up filing for bankruptcy, we want to make sure both partners remain as financially sound as possible.
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 case evaluation to anyone considering bankruptcy. Let us look over your portfolio so we can determine your best next step.
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.