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FAQs: California Married Couples Filing for Bankruptcy

Here in Irvine and throughout California, married couples buried under crushing debt can file for bankruptcy to obtain immediate relief from abusive debt collectors, stop debt collection lawsuits, and begin the process of financial recovery. The married couple has the option of having one spouse file an individual bankruptcy or filing jointly.bride and groom holding hands

There are advantages and disadvantages to filing individually versus filing jointly, and there are many factors that must be considered when evaluating which is better. It is also essential to know your rights and the financial ramifications of each type of filing. Seeking advice and counsel from proven and dedicated Irvine bankruptcy and debtor’s rights attorneys like the ones at Guardian Litigation Group is the first step. Here are answers to a few frequently asked questions about married couples filing for bankruptcy here in the Golden State.

Q: What Is "Community Property?"

California is what is known as a "community property" state. In California, all property of the spouses acquired or earned during the marriage belongs to both spouses in equal shares, otherwise known as community property. For example, a spouse's paycheck is community property and is one-half owned by the other spouse.

Other examples include a residential home or an automobile purchased by the couple. Certain other property is excluded from being deemed community property. Examples would be property acquired before marriage or property inherited by one spouse during the marriage.

Q: Why Does Community Property Matter?

When a bankruptcy petition is filed, something called a "bankruptcy estate" is created. When a petition is filed, all of the property and assets owned by the debtor are "poured over" into the bankruptcy estate. In theory, all of that property and those assets can be sold to pay the debtor's creditors. If a debtor is married, ALL community property goes into the bankruptcy estate including the half owned by the other spouse. That is the downside.

On the upside, when the bankruptcy discharge is received, the discharge will apply to ALL community property that went into the bankruptcy estate. Thereafter, that community property is protected from ANY efforts by creditors to seize that property in payment for debts owed by either spouse. This is where there may be an advantage for one spouse to file individually.

Q: What About Non-Community Property?

If there is significant non-community property owned by one spouse, protecting that separate property may be another reason that it is advantageous for the other spouse to file individually.

Q: Can One Spouse File Individually and Obtain Discharge of Debt Owed Jointly?

Yes. Just like property is community property, generally, all debt incurred by the spouses during their marriage belongs to both spouses in equal shares. In this sense, California is a "community debt" state. Community debt enters the bankruptcy estate in the same way that community property enters the bankruptcy estate. Thus, one spouse filing individually can obtain a discharge of a debt that was incurred jointly.

Q: Can One Spouse File Individually and Obtain Discharge of a Debt Owed Solely by the Other Spouse?

No. If one spouse has debt that is solely and exclusively owed by that spouse, a bankruptcy filed by the other spouse will have no impact on that debt.

Q: What About Bankruptcy Exemptions?

Under California and federal laws, a debtor in bankruptcy can exempt certain property and assets from being sold for the benefit of creditors. A higher level of exemptions is given to married couples. Depending on what assets need to be protected from liquidation, it may be necessary to have the couple file jointly.

Q: What About Credit Scores?

Another advantage of filing individual bankruptcy is that the other spouse’s credit scores will not be impacted.

Contact an Experienced Debt Relief and Debtors’ Rights Attorney

For more information, contact the Debtors’ Rights attorneys at Guardian Litigation Group. We can help if you think bankruptcy is the right option and we can help explore your options with respect to a joint or individual petition. We have the tools and experience you need. Our mission is to provide unparalleled legal services and support for those being crushed by their debts and harassed by their creditors.

We can be reached via our contact page or by phone at (949) 312-4226.