How Bankruptcy in California Affects Your Spouse

The American Bankruptcy Institute reported that there were 51,146 bankruptcy filings in California in 2020. Couples going through financial hardship in California have the option of filing for bankruptcy together or individually. It is important to understand how filing for bankruptcy affects your spouse so that you can make informed decisions.

At The Orantes Law Firm, we are dedicated to offering comprehensive and knowledgeable guidance to individuals and families in bankruptcy-related matters. Our experienced California bankruptcy attorneys will discuss your circumstances and determine the best filing option for your situation. Whether you are trying to file as an individual or together with your spouse, our attorneys will offer you the experienced legal counsel and advocacy you need. We proudly represent clients in Irvine, and Los Angeles, California, as well as throughout Los Angeles County and Orange County.

Separate Property vs. Community Property
in California

In California, assets fall into two categories — separate property and community (marital) property.

Separate Property

Separate property involves all assets owned or debts incurred by either spouse before the marriage. According to California Family Code Section 770, the separate property of a married person includes all of the following:

  • All property owned by the person before marriage
  • All property acquired by the person after marriage by gift, bequest, devise, or descent
  • The rents, issues, and profits of the property described above

Community Property

Community property involves all property and debt acquired by the couple during the marriage or partnership. Pursuant to California Family Code Section 760:

"Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property."

In California, all community property will become part of the bankruptcy filing, even if only one spouse is filing for bankruptcy. Separate property belonging to the non-filing spouse will not be included in the bankruptcy estate.

Filing for Bankruptcy
as an Individual

In California, married couples are not required to file for bankruptcy together. Each bankruptcy case is unique, and it may make sense for just one spouse to file. Contrary to popular belief, both spouses' income must be included in the forms when filing for individual bankruptcy. Here are some of the pros and cons of filing bankruptcy as an individual in California:

Pros

  • Individual bankruptcy wipes out some of the indebted spouse's unsecured debt without negatively affecting the non-filing spouse's property
  • It offers the ability to protect more property by filing two individual cases
  • If the non-filing spouse has a good credit rating, it will be preserved

Cons

  • Married individuals must include the non-filing spouse's income
  • Filing two individual bankruptcies will result in higher attorney fees and court costs
  • The non-filing spouse isn't protected from creditors
  • Couples who make too much money may fail the Chapter 7 “means test” (the test that must be passed to become eligible for a Chapter 7 discharge)

Filing for Bankruptcy Together

In California, legally married couples are allowed to file for bankruptcy together in what is referred to as "joint bankruptcy." Here are some of the pros and cons of filing bankruptcy as a couple in California:

Pros

  • Both spouses can eliminate unsecured debts all at once by filing together
  • They can wipe out qualifying debt incurred as a married couple or due to individual expenses
  • Filing together saves money in court filing fees and attorney fees
  • Filing jointly is more convenient and efficient as only one petition is required
  • Couples can attend a 341 meeting of creditors together
  • It will be easier for the trustee and bankruptcy court to resolve property issues and streamline the bankruptcy process

Cons

  • California does not allow joint filers to claim double property exemptions
  • Filing a joint bankruptcy negatively affects the credit rating of both spouses

How Our Team at The
Orantes Law Firm Can Help

Filing for bankruptcy in California involves a lot of complex procedures. Whether you are filing as an individual or together with your spouse, your separate or community property can make a significant difference in your case. When considering filing for bankruptcy, it is important that you speak with a knowledgeable California bankruptcy attorney for proper guidance and to determine the ideal option that suits your needs.

At The Orantes Law Firm, our attorneys are committed to guiding clients through every step of the bankruptcy filing process. As your representation, we will evaluate your personal situation, help you understand your legal options, and lead you toward the best option for your needs. Our team will also determine the right bankruptcy chapter for you, help file your forms, and represent you in court through all bankruptcy proceedings.

Contact us at The Orantes Law Firm today to schedule a consultation. Our team can offer you the comprehensive legal guidance and advocacy you need to make informed decisions. We proudly serve individuals and families throughout Los Angeles County, Orange County, Irvine, and Los Angeles, California.


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