Author: Dustin Wetton
Filing bankruptcy is a tremendously difficult decision to make, especially if the consequences of that decision may disrupt marital peace. To keep things harmonious on the home-front, an important option to consider is whether spouses should file together or separately.
A common misconception is that all debts of a marriage are each spouse’s responsibility, called “community debts.” While there are instances where community debts do exist, many debts are not community debts and therefore are not the liability of both spouses. Generally marriage alone does not make community debts, it is often through contracts and agreements between the lenders and the debtors. Commonly, only persons who signed for a loan or credit are liable for such debt. Thus, while finances and situations may be leading your family towards considering bankruptcy, it is very important to analyze each and every debt to see if it is in the best interest of your family to have only one spouse file bankruptcy.
A bankruptcy filing by one spouse is allowed under the Bankruptcy Code, and this filing does not bring the other spouse into the bankruptcy. While this may sound great, I must reiterate the necessity to analyze all of the debts to ensure that most, if not all, of the debt is that of the filing spouse, i.e. “separate debt.” I say this because if it is community debt, the protections of filing bankruptcy, called the automatic stay, will not be allocated to the non-filing spouse. Therefore, if there is community debt, and only one spouse is filing bankruptcy, then the non-filing spouse will be 100% liable for that debt themselves and the creditors will come after them hard as they would be aware of the other spouse filing bankruptcy. Thus, it is important to make sure what debt is what and how much at risk the other spouse may be.
Another important consideration is joint property. Under California law, property purchased during marriage is community property. Therefore, in bankruptcy, the bankruptcy estate will consist of rights to the community property. So even if only one spouse is filing, both halves of the community property rights enter the estate and all of it is both protected if it can be exempted, or is available for paying creditors. Therefore, it is important to analyze what properties may be at risk and to ensure that there are allowable exemptions or other protections available.
In sum, even if you are married, only one of you can file bankruptcy without affecting the others credit record, however, to do this without causing turmoil at home, be sure to have your debts and properties properly analyzed.
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