When going through a separation with your spouse, the emotional health of each partner should be the focus. Unfortunately, trying to go your separate ways while still battling joint debt can seem almost impossible.
Fortunately, filing bankruptcy while separated can provide some relief from debt and in many cases make a separation or divorce much less complicated and painful.
What Are the Different Types of Separation in California?
Trying out a temporary separation and filing for a legal separation are two different things, and couples should be aware of how each option affects their chances of earning debt relief.
A trial separation is usually associated with couples who are taking a break from marriage but still hope to get back together at some point. This can mean spouses voluntarily spend time living apart or simply move to different rooms of the house. This is usually a personal agreement between two people. Legal documentation isn’t needed.
Since this separation isn’t legally acknowledged, if a bankruptcy is filed the court would still consider the couple married. The standard rules for couples filing together or separately would apply. You can find more information about filing while married in our online guide to bankruptcy: The Ultimate Guide to California Bankruptcy.
California offers legal separation as an alternative to divorce. A legal separation can be the best option for couples who are still bound by financial problems or worried about the care of their children. The partners may acknowledge that they can’t divide their financial and familial ties quite yet.
Filing for a legal separation can leave partners in a more secure position than in an unofficial separation. The court is brought in to determine the financial responsibilities of each spouse. The court divides up property and assets.
The couple is still married, but they’ll have the court’s official help in separating finances and assets and determining child support and custody. The court’s work to split finances and responsibilities, and this can lead to an easier time when filing for bankruptcy.
Can You Seek Bankruptcy While Legally Separated?
You are permitted to seek bankruptcy while legally separated. Whether or not bankruptcy will solve your debt issues is another question.
While filing bankruptcy alone will usually involve your own debts and assets, the debt you share with your spouse may not be dischargeable in a Chapter 7 bankruptcy.
What’s more, you could earn a discharge of your shared debts to a creditor, but if your spouse isn’t part of the filing then he or she may suddenly be targeted for that debt. The creditor that can no longer bother you for repayment isn’t prohibited from going after your partner.
On the bright side, any debt your spouse collects while legally separated should only count against them.
How Does the Chapter 7 Means Test Work in a Separation Case?
Another advantage you do enjoy if you file while legally separated and living apart is that you have a better chance at passing the Chapter 7 Bankruptcy Means Test.
The means test adds your household’s income and assets together to make sure you don’t make too much money to seek Chapter 7 relief. As a couple living together, you could bring in too much to qualify.
If you are legally separated and living apart, the means test will probably only take your income into account. This provides you with a much better position to meet the requirements to move forward with bankruptcy.
How Does Legal Separation Affect Chapter 13 Bankruptcy?
Chapter 13 Bankruptcy can bring up completely different concerns for couples in the midst of a legal separation. A Chapter 13 filing requires those that file to come up with a three to five-year plan to pay off a percentage of their debts.
This plan is usually calculated with the couple’s joint assets in mind. If a divorce is completed after filing for Chapter 13, the filer’s income could suddenly change dramatically now that they are single. The payment plan may be impossible to keep up with for one person.
Should You File for Bankruptcy Before or After Divorce?
This is a tricky question because sometimes filing for bankruptcy before a divorce can make the dissolution of a marriage easier. Sometimes it makes it more difficult.
Completing a bankruptcy before a divorce means you’ll have already divided up debt and assets during the bankruptcy process so these issues shouldn’t pose major problems during divorce negotiations. If you share a lot of debt or property with your spouse, filing before a divorce can make sense. Your bankruptcy filing after a divorce would still likely include a lot of your ex-spouse’s financial information anyway because you’re still linked by debt.
When you know that you’re heading for divorce, sometimes it’s best to delay your bankruptcy. Waiting until after a divorce can mean the court’s assessment of your financial situation would be based on your income and debt as a single person. Your ex-husband or ex-wife’s income won’t usually factor in and complicate your bankruptcy bid.
The decision will come down to the best timing for you. You should file when you’ll have the most debt eligible to get wiped clean by bankruptcy. With so many different determining factors, it’s important to talk with a bankruptcy attorney with a long, successful history of navigating the bankruptcy process.
Contact a Bankruptcy Lawyer Serving Los Angeles
Couples going through a legal separation or a divorce should be given time to deal with the emotional impact of such a life-changing decision. Sadly, that’s not always possible when partners share a lot of debt. Financial concerns will have to play a role as a relationship comes to an end.
Choosing the best time to file for bankruptcy is always a complex decision, especially when filers are still bound by the legal obligations of a failing marriage. Your options can depend on dozens of factors, and you’ll want the Law Offices of Steers and Associates there to guide you and your spouse to the simplest most effective option. The goal is reaching financial freedom, even if you can’t do that with your current spouse.
Whether you face bankruptcy as a couple or as an individual 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 situation as well as your spouse’s information so we can determine your best path to debt relief.
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.