One Spouse Filing Bankruptcy
All you need to know about one spouse filing bankruptcy individually or separately
Can one spouse file bankruptcy without the other?
Can one spouse file bankruptcy without the other? In consultations, that’s one question I get asked a lot. When we’re married in California, everything is presumed to be joined and shared. So, can a married person claim a bankruptcy? The answer is, “Yes.” Even though someone is married, they have every right to file bankruptcy without the other spouse. They have their own Social Security number and their own credit history. But just because you can do something doesn’t mean you should.
I’m a bankruptcy attorney practicing in Los Angeles County in California, which is a community property state. All of the information here is specific to California. If you are in a different state, even if it’s community property, this information may not apply, and you should find a bankruptcy lawyer near you. Consult with your bankruptcy lawyer or if you’re in the greater Los Angeles county area, contact me for a consultation.
If I file bankruptcy individually without my spouse, do I include their finances?
Yes, in California, a community property state. A debtor needs to disclose all of their assets, and those of the community. 11 USC 541(a)(2). When we get married and say “I do” here, there is a general presumption that every asset or dollar acquired by either person is community property and belongs to both. Calif Family Code 760.
So regardless of whose name is on the paycheck, bank account, or monster truck, the general marital community property presumption says that if it was acquired during the marriage, it belongs to you both (even a personal injury or wrongful death claim). And when one spouse files bankruptcy, he or she must list the income, stuff, and financial data of the other spouse. For this reason, this factor is no advantage for only one to file, as all the info comes in either way.
Do I have to list the debts of my spouse if I file bankruptcy separately?
Family Code Section 910 says, “…the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.” California FC Section 914(a): “..a married person is personally liable for the following debts incurred by the person’s spouse during marriage: A debt incurred for necessaries of life of the person’s spouse before the date of separation of the spouses.”
Given that, if you are liable for a debt, it is your debt. The bankruptcy petition tells you to list all your debts. Including those of your husband or wife. The bankruptcy trustee will ask if the papers list all of your debts. You must list all debts you are liable for, and that would include those of your spouse in California. Ask your bankruptcy attorney for more on your specific situation.
If my spouse files bankruptcy, will it affect me?
“Will filing Chapter 7 bankruptcy affect my spouse?” This question understandably comes up a lot. Affect is such a broad word. It’s almost certain that the bankruptcy will affect the spouse, though how varies from case to case. It may affect the spouse if it’s a Chapter 13 and the community income — that is both pay checks — are used to fund the debt consolidation. It might affect the spouse emotionally.
It could affect the spouse that their debts should be included in the bankruptcy even though the spouse isn’t filing, and affect the credit of the spouse, and the accounts are closed even though they’re being paid on time.
If you file bankruptcy and your spouse doesn’t, I won’t need their Social Security number or their signature on anything. While I’m happy to meet them, if they truly don’t want to be involved, they need not attend any consultations or court hearings. However, as their financial information is included because of the community property presumption, it will likely affect the spouse in some way.
Is there a benefit to me if my spouse files bankruptcy and I don’t?
There are pros and cons to weigh and assess when trying to decide if only one or both spouses should file. There are benefits. Yes, because one spouse can file bankruptcy for both, that’s a benefit. If your spouse files bankruptcy and you don’t, there is one obvious benefit to you: you don’t have a bankruptcy on your credit report. Their bankruptcy should be eliminating your eligible debts also as nonfiling spouse, and the effect is to discharge the debts of both spouses, husband and wife, even though only one person filed. It can be a two-for-the-price-of-one transaction.
Will filing bankruptcy hurt the credit of the nonfiling spouse?
Yes. While the married person not filing (fancy term: non-filing spouse) won’t have a bankruptcy on their credit report, their debts should be in the bankruptcy. And when debts are in a bankruptcy, the accounts are typically closed, and reported negatively to Experian, Trans Union and Equifax credit reports. Not “bankruptcy” bad, but still, it should result in derogatory marks on their credit report since the accounts are no longer paid “as agreed.”
My spouse is disabled, unavailable, or isn’t capable of testifying. Can I sign or testify for my spouse in my bankruptcy?
Not without something more. Whoever files bankruptcy has to testify as to the truthfulness of the papers. This is done in two ways: one in signing the papers under penalty of perjury, and a second time at the 341(a) meeting of creditors. If your spouse is physically not available, or mentally or cognitively unable to testify, you cannot testify for them, without some additional permission and evidence.
Can I use a power of attorney to file bankruptcy for someone else?
The ability to use a power of attorney for a bankruptcy can vary by jurisdiction and is subject to local rules and practice. For example, some courts allow Power of Attorney. United States v Spurlin, 664 F. 3d 954, 959 (5th Cir. 2011), but see also locally here In re Foster, 2012 WL 6554718 (9th Cir. BAP 2012), which says a POA cannot be used in lieu of signature on a pro se complaint as it is construed as practicing law without a license.
There’s a possible solution where you get court permission to represent your spouse or someone else. In the Central District of California, this is called a “next friend.” FRBP 1004.1 says a bankruptcy court will recognize a personal representative appointed by another court or the bankruptcy court has authority to appoint a next friend. The standard is that petitioner is unable to litigate his own cause due to mental incapacity and the next friend must have significant relationship with and is truly dedicated to the best interests of the petitioner. Coal. of Clergy, Lawyers, & Professors v Bush, 310 F. 3d 1153 (9th Cir. 2002). There are various types of evidence that may be used to show incapacity. AT&T Mobility v Yeager, 2015 WL 6951291, at 5-6 (E.D. Cal. 2015). This will incur extra work and legal fees, and may not always be necessary.
If one spouse files bankruptcy, does the other spouse get bankruptcy protection?
As usual in law… it depends. Chapter 13 bankruptcy is special in that it has something called a co-debtor stay of Section 1301. Both spouses are liable on the debts of the marriage, regardless who who incurred it or manages the finances. Family Code 910. So, both spouses are typically liable for all debts. This means that if you file bankruptcy and your spouse doesn’t, that they’re still protected by the codebtor stay if only one of you files Chapter 13.
Great, but is there bankruptcy protection if only one spouse files Chapter 7?
Yes, but not for the nonfiling spouse. Chapter 7 bankruptcy only protects the person or people who filed. And spouses in California, while they are liable on debts incurred during the marriage, are not protected by the automatic stay if they don’t sign the petition and schedules and file bankruptcy. However, once the filing spouse gets a discharge, their property cannot be collected against or it’s a discharge violation.
So, most creditors don’t collect against the nonfiling spouse, since their assets are the same assets as the person who filed and got the discharge. But beware: Family Code 914 says that the separate property of the nonfiling spouse can be collected on, if they have any (most don’t).
In most Chapter 7 cases, the creditors don’t collect against the other spouse where one files, but are allowed to, even give them a lawsuit. They just can’t use the judgment from a lawsuit to touch community property assets. As that usually is everything, most collectors don’t bother. But they can.
As you weigh pros and cons, what is the benefit of certainty in Chapter 7 of both parties being absolutely protected from creditor calls and collections worth? If it’s a lot, is it “bankruptcy on your credit report” a lot? Talk with your bankruptcy attorney. There may be other variables in your unique circumstances.
Can a lien be placed on my house for my spouse’s debts?
Generally, yes. Because of the Calif Family Code sections above, both spouses (and their assets) are liable for the debts of the other in a marriage. So, if Spouse A got a big credit card debt, there could be a credit card lawsuit resulting in judgment. A judgment lien can then be attached against the asset which Spouse B also owns (typically community property acquired during the marriage in Calif). Filing bankruptcy and getting the automatic stay would stop the lawsuit, and protect that community asset. 11 USC 541(a)(2)(B).
Can they garnish my paycheck for my spouse’s debts?
Again, yes. See above. Both spouses — and their community assets — are liable for debts incurred during the marriage under the California Family Code. A paycheck belongs to both spouses, regardless of whose name is on it. There is also the issue if one innocent spouse can be liable for the fraud of the other. So the general answer is, yes, they can garnish your paycheck for the debts of your spouse, and vice verse.
The intersection of bankruptcy law and community property confuses many people, including attorneys in California. There is not always one best answer to the question, “is it better for us both to file bankruptcy jointly together, or just one spouse separately.” Is it possible to file individually? Yes. What’s best for you and your unique circumstances? Contact me or set up a free Zoom consultation with the link at the top of this page and let’s go over it together. Thanks for reading.