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If you are married, a key question arises as to whether it makes sense to file a Joint petition (both you and your spouse), or a separate petition just on your behalf. One of the most common questions our office receives is whether there is a way to “SAVE” one spouse’s credit, while eliminating all debts by filing bankruptcy for only one spouse. Because each case is unique, we always evaluate these scenarios carefully, to determine whether it makes more sense to file a joint petition as husband and wife, or whether it is indeed unnecessary to file a joint petition, thereby saving one spouse’s credit standing.
Here are the key considerations in making the evaluation above:
1. GENERAL LIABILITY ISSUES – The key consideration is whether the spouse of the Debtor will be exposed to liability for the debtor’s debts. If the spouse is also liable for the debts--as a co-obligor or under community property law-- it may be advisable to file for both spouses. Otherwise, the nonfiling spouse may remain liable despite the debtor spouse's bankruptcy discharge. On the other hand, if the spouse's assets are all separate property that would not be liable for the client's debts, it may be unnecessary to file for the spouse.
- COMMUNITY PROPERTY – California is community property state. That means that generally speaking, all debts and assets incurred and gathered, respectively, DURING marriage, are community property and BOTH spouses are liable for the community debts, and have claims to the community assets. However, if debts and assets are clearly separate property of the filing spouse, then it may be unnecessary to file for both. Determining if debts or assets are indeed separate property depends on a variety of factors such as: how the debts were incurred, who benefited from the debt, were certain assets gifted as separate property to only one spouse, etc.
- DISCHARGE OF COMMUNITY CLAIMS – In a community property state (as in California), a discharge in the filing spouse’s bankruptcy petition may be all the protection the other spouse needs in order to be absolved from future liability and claims from creditors. With some exceptions, a bankruptcy discharge bars action on account of a "community claim" (a prepetition debt for which community property of the bankruptcy estate is liable), against community property acquired after commencement of a bankruptcy case. However, the non-debtor (non-filing) spouse may still be liable for certain community debts such as “necessities of life.” If such “necessities of life” debts are significant, it might make sense to file a joint petition in order for the spouse to protect his or her separate property.
- BENEFITS OF FILING A JOINT PETITION – Filing a joint petition may offer the “umbrella” protection that many debtors may need. Once a bankruptcy discharge is obtained on a joint petition, both community property and separate property should enjoy the protections post-bankruptcy discharge. In addition, filing a joint petition only requires one filing fee. Once a separate petition is filed, it cannot be amended to a joint petition. The only other remedy would be for the other spouse to file as well, and seek consolidation for joint administration.
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