How Does Marriage Affect Bankruptcy?

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When it comes to bankruptcy, a couple’s marriage can be an important variable to consider. Fortunately, it is not required that both spouses file for bankruptcy – only one may have to, although there could be some financial benefits for a joint filing.

When to File Separately

When people get married in California, everything they owned prior to marriage – including their debt – is considered their separate property. After marriage, any assets, property, or debt accrued by either spouse is considered community property belonging to both in equal proportions.

If a spouse brought a lot of debt into their marriage, then they can file for bankruptcy separately. Doing so will only affect their credit score and creditors will only be able to go after their separate property. In other words, going through bankruptcy alone can protect community property and the other spouse’s separate property as long as neither was comingled with the first spouse’s debts.

When to File Jointly

It may be necessary for married couples to file for bankruptcy jointly when they share a debt. This is typically the case when a debt, such as a mortgage or credit card, was incurred during marriage. Spouses share a debt whether an account was opened in both of their names or only one – what matters is that the debt occurred while they were married.

While all property belonging to both spouses can be claimed by creditors during bankruptcy, the good news is that each spouse’s separate debts can be ejected with their community debts. This is only possible for debts that can normally be discharged through bankruptcy, however.

Another potential downside of filing jointly is that both spouses’ credit scores can be affected, although it may not be as severe as some expect. Depending upon where your credit is currently, the hit can sting in the short run, but it is often recoverable.

How Could a Joint Filing Be Advantageous?

California provides two sets of bankruptcy exceptions, 703 and 704, which allow filers to protect various types of property valued up to specified amounts from liquidation during Chapter 7.

Filing jointly can be a good strategic choice because it effectively allows spouses to double their bankruptcy exemptions. This can be an important consideration when it comes to protecting home equity, vehicles, household items, and other important property.

If You Need Legal Guidance, We Can Help

At Financial Relief Law Center, APC, we understand that issues concerning bankruptcy aren’t always so easy to understand. How your marriage could factor into bankruptcy is important when you want to protect your spouse from the consequences of your separate debt, or when you both need to seek financial relief together.

When you need legal guidance to help you navigate bankruptcy, don’t hesitate to reach out to Financial Relief Law Center, APC for assistance. We’re here waiting to help you make sense of a difficult situation and get the relief you need.

Get in touch with us by calling (949) 787-1889 or by submitting an online contact form today.

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