Frequently Asked Questions about Bankruptcy and your Husband, Wife, Spouse:
You husband, wife, or spouses credit is not directly affected by the filing of your bankruptcy. Your husband or wife’s credit score is separate and distinct from yours. When you file bankruptcy, it should not show up on their credit or otherwise affect their credit score.
When only one spouse files a bankruptcy, only the filing spouse receives a discharge. Consequently, if the other spouse was also obligated on that debt, then the creditor still has the right to demand payment from the non filing spouse. If the non filing spouse does not satisfy the debt, then their credit could be impacted. Consequently, it is important to recognize that the filing of bankruptcy by one spouse does not relieve the other spouse of their personal liability.
In very rare situations, creditor will inadvertently notate on the non-filing spouses credit report that the filed bankruptcy. This happens rarely, and is easily remedied by disputing that notation with the credit bureaus. If your spouse files for bankruptcy, it is recommended that you review your credit report approximately 120-180 days after they filed for bankruptcy to make sure this error was not made.
If you are married, both spouses do not have to file bankruptcy. Likewise, you do not need your husband’s or wife’s permission to file bankruptcy, and you cannot stop your spouse from filing bankruptcy.
However, in many cases when one spouse files bankruptcy, it is usually best if both file. The cost for both spouses to file bankruptcy at the same time is generally the same, or only a negligible difference. By filing together, both spouses get a discharge of the debts, and thus the household income is not jeopardized.
You husband or wife does not have to agree to you filing bankruptcy, and you do not “need” their cooperation. However, there are situations when their cooperation could be beneficial to you.
In a bankruptcy, you want to “exempt” certain assets. By exempting an asset, you get to keep that asset, or possibly reduce the amount you have to repay creditors based on that exemption. California has two sets of exemptions; one set is more beneficial if you have lots of equity in your home, and the other set is traditionally more beneficially if you have little to no equity in a home. If your spouse is cooperative, you can select either set of exemptions. If your spouse is not cooperative, then you can only select the set that has the large homestead exemption.
In determining your bankruptcy qualification, and/or the amount you have to repay, if at all, your household income is a major factor. If you are married and living together you must count your husband or wife’s income in the calculation. However, if you are not living with your spouse, then they are not part of the household and their income does not count against your qualification.
Unfortunately, bankruptcy and divorce often go hand-in-hand. Sometimes financial stress leads to divorce. Other times, the splitting of the household doubles many expenses thus leading to bankruptcy. Generally speaking however, the bankruptcy system makes the divorce easier rather than more difficult.
If you have two households rather than one, qualifying for a bankruptcy is usually easier. Usually when you are living separate and apart, the other spouse’s income is not counted towards the income qualification tests. Likewise, most divorces these days center around the division of debts, rather than the division of assets. With a bankruptcy, that fight over who has to pay the debts is simplified by the discharge. If you are in the process of a divorce, or think one might be imminent, it is important that you speak with a bankruptcy attorney about this. Knowledge of that fact in advance can simplify many issues for both your bankruptcy attorney and your family law attorney.
Even if you are in the process of getting a legal divorce, or are legally separated, you can still file a bankruptcy together. Often the cost of filing a bankruptcy for both spouses is the same cost as filing for just one spouse. Likewise, if you both file bankruptcy together it eliminates many disputes over who is responsible for the debts after a divorce, resolves issues over exemptions, and can sometimes make qualification for bankruptcy easier.
In most cases, if you and your husband/wife are in the process of getting a divorce, you can use the same attorney to handle a joint bankruptcy. It is very common for spouses in the divorce to jointly meet with the same bankruptcy attorney, as it saves money and ensures that their interests are aligned. However, jointly filing and using the same attorney is not always practical. If during the initial meeting or thereafter the bankruptcy attorney feels there is a potential conflict of interest, the bankruptcy attorney should disqualify themselves and refer each spouse to separate counsel. This conflict is usually apparent early on, and consequently, it is usually worth trying jointly at first.
How do I tell if my husband/wife is jointly responsible for my credit card? If a card is in my husband/wife’s name, are they also liable?
While California is a community property state, and each spouse is generally liable for the other spouse’s debts, it is very rare that a credit card company will sue both spouses. They usually only sue the spouse that is the signatory on the credit card contract. To determine whether the credit card company is likely to sue your husband or wife for the debt, review your spouse’s credit report. If the credit card in question shows up on their credit report, then they will likely be sued. If the credit card is not on their credit report, then they are often just and “authorized user” and not a direct signatory on the account. While it is not foolproof that your spouse will not be liable if the card is not on their credit report, it is usually a very good predictor.
Should I file bankruptcy before I get married? Will my wife or husband become responsible for my debt if we get married? Will I become responsible for my husband or wife’s debt if we get married?
California is a community property state. Oversimplified, that means that assets and debts acquired “during” marriage belong to both spouses equally. Consequently, if one spouse has a bunch of debts in their name before getting married, marriage does not automatically make the other spouse liable.
However, if a potential spouse has lots of debts and is contemplating marriage, it is particularly wise to consult with a bankruptcy attorney before getting married. Once married, the income of both spouses usually counts towards the eligibility of one spouse to file a bankruptcy. As such, it is sometimes best to file for bankruptcy just before or just after a marriage to maximize the ability to qualify, or minimize the amount that must be paid back.
The fact that your husband or wife filed bankruptcy does not directly affect your credit, or make you liable for their debts. However, if they filed bankruptcy and you were jointly liable for their debt, it is now all yours.
If my ex-wife or ex-husband became responsible for debts in our divorce, can they get out of that liability in a bankruptcy?
The object of a bankruptcy is to get a discharge of all of a person’s debts. If they are otherwise eligible for a bankruptcy, and comply with the bankruptcy requirements, they get a discharge of all debts with certain statutory exceptions. The two most common exceptions applicable in divorce cases are domestic support obligations, and to a lesser extent spousal equalization payments.
A spouse that files bankruptcy cannot discharge domestic support obligations. Those debts automatically survive the bankruptcy, and a non-filing ex-spouse does not need to take any action to make sure those debts survive the bankruptcy.
If one spouse assumed debt of another spouse as part of a spousal equalization agreement, it is possible that the impacted spouse can file a mini-lawsuit in the bankruptcy court to keep the filing spouse from being discharged of that debt. However, the lawsuit is not inexpensive, and not always successful. If you or your spouse agreed to assume debts as part of a divorce, and a bankruptcy is later filed, you should immediately speak with a bankruptcy attorney about your rights and/or possible obligations.
Many questions can be answered with a simple yes or no, however, this is not one of them. Filing before a divorce is final can sometimes simplify the divorce process making things easier. Alternatively, sometimes waiting until after divorce can be better for qualification and exemption reasons. If you are in a divorce proceeding, or will be, you should contact a bankruptcy attorney immediately to make sure you time things so as to best protect your rights and interests.
There is not technical requirement to wait at all after filing bankruptcy to get married. We have literally filed bankruptcies for people in the days and weeks prior to their marriage. However, you should consult with a bankruptcy attorney before getting married prior to the entry of a discharge to make sure that your case is not impacted by a change in household income or similar circumstances.