“For better or for worse” has always been the tagline associated with marriage. Still, times of trouble, especially financial trouble, can put a significant strain on a marriage. This holds especially true when it seems as though only one spouse has accumulated nearly all of a couple’s debt.
As an experienced Bay Area bankruptcy lawyer, Christian Younger has met with many clients who are concerned that by filing for bankruptcy, they will jeopardize their spouses’ futures as well. While in some states filing for bankruptcy can exclude one spouse almost entirely, Younger explains that because California is a community property state, it makes some of the details of bankruptcy a little more complex.
While some couples come into the offices of Younger & Hennecke to file for bankruptcy together, there are many instances, Younger says, where only one spouse files for bankruptcy. It really depends on the situation and if all of the debt is in the client’s name as the result of credit cards, lawsuits, or medical bills. For the most part, Younger says, people know whether they are accountable or not.
The need for clarification is necessary when it comes to filling out the bankruptcy petition. The information that the bankruptcy court requests is extremely detailed and includes all of an individual’s debts, assets, and lines of credits.
Since California is a community property state, this means that any money added to accounts during the time of a marriage becomes a community asset. Therefore, all of that information must be disclosed in the bankruptcy filing regardless of whether one spouse files or a couple files together.
In Chapter 13, says Younger, you will be able to keep your assets, but this money will be used to determine the amount you are expected to pay through your reorganization plan. In Chapter 7, he explains, exemptions should be applied to your assets as eligible, and the bankruptcy trustee may use some of those assets to distribute funds to creditors before your debt is consider discharged.
The exemptions in California for Chapter 7, Younger specifies, include retirement plans, jewelry, vehicles, and equity in a home. There is also a wild card exemption which allows debtors to apply exemptions of up to $23,000 of their choosing, he adds.
It is when people do have a large amount of assets to protect that they typically choose to file for Chapter 13 as opposed to Chapter 7. Because California is a community property state, even the spouse who is not in debt must include his or her income in the filing. On the other hand, that spouse’s monthly expenses will also be taken into consideration when determining repayment plan amounts.
For instance, Younger explains, if the spouse has a car loan or a student loan to pay each month, it will be an expense to be taken into consideration. Community property is the chosen method in California, he explains, to help prevent fraud in the instance that an unemployed spouse accrues all of the family’s debt and then files for bankruptcy since he has no income to contribute to repaying creditors.
The chapter of bankruptcy that you ultimately choose to file for is always completely dependent upon your situation. For instance, says Younger, if you have $200,000 in unsecured debts yet only $5,000 in assets, then you probably won’t be too hesitant to relinquish the $5,000 if it means that you won’t be held responsible for the rest of your debts any longer. Regardless of whether your debt is the cause of one spouse or both, finding an effective solution can help restore some sanity to the union and relieve stress.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.