Can a Married Person Go Bankrupt in California?

Filing bankruptcy may be your only option for dealing with debt.

Residents of California can file for Chapter 7 or Chapter 13 bankruptcy protection, depending on the type and amount of debts owed and the value of their nonexempt assets. Married couples may choose to file bankruptcy jointly or individually. If you or your spouse is considering filing an individual bankruptcy petition in California, you need to understand how the process works and what impact it may have on your financial situation.

Joint vs. Individual Debts

The impact of bankruptcy on the non-filing spouse depends primarily on whether the debts included in the filing were incurred jointly or individually. If one spouse owes a significant amount of debt that is in his name only, filing bankruptcy is likely to have only a minimal impact on the non-debtor spouse. If, however, the debts were incurred by both spouses jointly either before or after the marriage, creditors can still attempt to hold the non-debtor spouse liable when an individual bankruptcy petition is filed. If you both owe debts jointly and individually, it may benefit you both to seek bankruptcy protection.

Chapter 7 vs. Chapter 13

In a Chapter 7 bankruptcy, the court agrees to release you from further liability for all debts incurred in the bankruptcy filing. In exchange, you must surrender your non-exempt assets. In a Chapter 13 bankruptcy, you agree to repay some or all of what you owe over time. Chapter 7 bankruptcy can limit both joint and individual debts up to any amount, regardless of whether one or both spouses file. A Chapter 13 repayment plan may be filed by one spouse for joint or individual debts. However, if your spouse files Chapter 13 for joint debts, your creditors may pursue you for the balance owed if the repayment plan does not provide for the full repayment of the debt.

Protecting Your Assets

California is a community property state, meaning that all property and assets acquired jointly after the marriage are equally subject to attachment from creditors. When you file bankruptcy, any assets you own individually or jointly with your spouse automatically become property of the bankruptcy estate. If you're filing Chapter 7, both you and your spouse must be able to exempt your assets to prevent the bankruptcy trustee from seizing them for liquidation. The state of California permits you to use one of two state exemption schemes or the federal exemption scheme to protect your assets. If a creditor attempts to attach assets of the non-filing spouse for joint debts after a bankruptcy case is discharged, it may only attach those assets owned separately.

Considerations

Filing an individual bankruptcy petition can potentially have a negative impact on the credit of the non-debtor spouse. If bankruptcy is filed on a joint debt, the discharge may be reported on both spouses' credit. In some cases, you can be held responsible for your spouse's debt even if it is not in your name. California law permits both spouses to be held liable for debts incurred to provide for the basic needs of the other spouse, such as unpaid medical bills. Consult a qualified California bankruptcy attorney to determine whether filing bankruptcy makes sense for you and your spouse.

References

• California Bar Association: What Can I Do If I Can't Pay My Debts?
• Nolo: Debt and Marriage: When Do I Owe My Spouse's Debts?
• Bankruptcy in Brief: Bankruptcy in California
• Bankrate.com; Can only one spouse file for bankruptcy?; Justin Harelik; February 23, 2010
• California Code of Civil Procedure: 703.140 Bankruptcy-Only Exemptions
• California Code of Civil Procedure: 704.010 Exempt Property
• California Code of Civil Procedure: 704.710 Homestead exemption

Resources

• U.S. Bankruptcy Court Central District of California: Homepage
• U.S. Courts: Chapter 7
• U.S. Courts: Chapter 13