When you read a lot of content about bankruptcy online, you might get the sense that it’s written for the individual. That is, the insight and tips you commonly come across might seem to address someone who’s single and thinking about bankruptcy. So, what about married couples?
If you’re married, you have the option to file for bankruptcy as an individual or jointly with your spouse. There are situations in which choosing one option over the other makes more sense, but that depends on a variety of factors we’ll go over below.
Community Property & Bankruptcy
California is a community property state, so a joint bankruptcy here is handled differently than in most states. Community property is any asset or debt acquired by either spouse during the course of their marriage. Community property is owned equally between spouses, regardless of who actually acquired the asset or incurred the debt.
Whether filing jointly or as an individual, all community property is considered by the bankruptcy estate. That said, much of it can be protected in a joint filing by doubling certain exemptions. Filing as an individual, however, can protect one spouse’s good credit rating, which can make it easier for the couple to recover after bankruptcy.
Filing for Joint Bankruptcy
A joint filing for bankruptcy could help spouses discharge their own separate debts, which include consumer debt such as medical bills or credit card balances incurred before getting married. So, when both spouses have a significant amount of debt belonging to each of them, a joint filing can make a lot of sense.
Even if this isn’t the case, filing for joint bankruptcy can allow spouses to increase the limit to certain bankruptcy exemptions. This can help them protect more of their community property than one spouse filing as an individual might.
Filing for Bankruptcy as an Individual
When one spouse files for bankruptcy as an individual, all of their separate debt and their liability for community debt is up for discharge. If they obtain a discharge for community debt, however, their spouse’s responsibility for the community debt remains intact. This is known as a “limited community property discharge.”
This can be problematic if the non-filing spouse has a significant amount of separate property. In that case, the couple’s creditors can go after that spouse’s separate property, although all community property is protected.
Therefore, filing for bankruptcy as an individual might make more sense when only the filing spouse has a lot of separate debt to discharge. Although their credit rating will be impacted, their spouse’s will not. This can make it easier for the couple to recover from the bankruptcy.
Contact Us for Legal Guidance
There’s a lot to consider when it comes to deciding how you want to file for bankruptcy. If you aren’t sure whether or not you and your spouse should file jointly, our attorney at Nguyen Law Group has the experience and skill to guide you toward the decision that makes the most sense for your unique situation.
If you feel you need help now, don’t hesitate to reach out to us. We’re available every day of the week with flexible hours, so we can be there when you need us the most.
For more information or to schedule a consultation, contact Nguyen Law Group online now.