How does bankruptcy work when you are married?
Here is a quick 3 point summary of how does bankruptcy work when you are married?
- Will both spouses have to file bankruptcy? No. But it often makes sense to do so if they share enough joint credit.
- What if a divorce is pending when you file bankruptcy? The bankruptcy can still be filed. However, any division of community property and debt might be superceded by rulings of the bankruptcy court. A joint bankruptcy can be filed at any time before the final decree of marrage dissolution.
- What if the couple is seperated when you file bankruptcy? Same as above. Even if seperated, they can still file toghether. Assuming, that is, that they both need a bankruptcy. If so, they might both file together for the same fees and costs as if only one spoused filed alone.
We are going to confine this article to marrage in community property states. Community property states, like California, have rules governing marital property and debts. Basically, community property is all property acquired during marrage while a couple is living together. Debts incurred by either spouse during that time are normally community debts. Community debts are enforceable against either spouse. It makes no difference whose credit was used. It doesn’t matter which spouse signed for the debt. There is an exception. Debts are community, provided they were incurred for the community benefit.
The Federal Bankruptcy Code provides that all community property becomes property of a person’s bankruptcy estate. It also says that comminity property assets can be used only for payment of community debts. Community property in bankruptcy can not be liquidated to pay a person’s seperate debts.
Some case get complicated. The rules are pretty straight forward. That is, until the facts of a case make it complicated. As Yogi Bera famously said, “Don’t confuse me with the facts.” For example, a couple might be living apart temporarily for purposes of work, or school. Are new assets and new debts community or seperate? The law considers the couple to remain a “community.” But provided that they consider themselves to be apart for temporary reasons. Not because they manifest a desire to split up.
What happens to Divorce Court Rulings? During a divorce, the Family Court will divide up responcibility to pay community debts. But what happens when your ex spouse fails to pay community debts assigned to that person? The answer is that creditors can still collect from both spouse. Why? Because the creditors were not parties to the divorce. The creditors never consented to the allocation of community debt. See, Filing Bankruptcy When Your Ex Won’t Pay. Normally, any support or property equalization judgments are not dischargeable. But sometimes equalization judgments may be discharged in Chapter 13 bankruptcy.
What about student loans owed by both spouses for the education of one spouse? Another sore point involves student loans. Obviously, education acquired by one spouse during marrage is not a tangible asset. Yet California divorce courts routinely order reimbursement to the other spouse for community funds that went to pay for the other spouse’s schooling. Responcibility to pay student loan debt can be divided, but where both spouses signed for the student loan, it is still enforceable against both spouses. Regardless of who received the education. See, Student Loans and Marrage.
You can read more in detail, if you’d like. Go here, to the Bankruptcy Guide.
The next thing you need is a Los Angeles Bankruptcy expert.
Why do you need a Los Angeles bankruptcy specialist? Let me explain. There is a big difference betwen understanding a concept verses having the expertise to put it into practice. Here’s the best example I can give you. I have a great understanding of the mechanical workings of a motor vehicle. But I do not have the expertise to fix anything on a modern automobile. I would not even try to.
