Do both spouses have to file for bankruptcy? Maybe not.
The bankruptcy operates as an injunction against the creditors taking action against all the community property ‑ even the non-filing spouse’s interest in the community property.
I realize this sounds confusing. Let's take an example. Your husband has run up $100,000 on credit cards in his name only. You only have a small amount of credit card debt in your name. There are no joint cards.
The two of you fall on hard times and your husband can not pay the $100,000 in credit card debt.
Your husband can file bankruptcy. The credit card debt will be discharged. Your name wasn’t on the credit cards so you were never responsible in the first place.
What about your 1/2 interest in the community property? Can your husband’s former creditors go after your 1/2 interest in the community property?
The answer is “no”. All the community property is safe. Plus your credit is probably still okay since only your husband declared bankruptcy.
Of course, when we file we have to make sure all the community property is exempt. And we have to make sure that your name isn’t also on any of those credit cards.
As discussed elsewhere there are income ceilings for a chapter 7 bankruptcy. If only one spouse is filing is the income of the non-filing spouse considered? The answer is that only that portion of the non-filing spouse’s income that is contributed to the household is considered. For example, if the non-filing spouse pays $500 per month to an ex-spouse then that would be deducted. The means test for cases where only spouse is filing works like this: Then income of both spouses is computed. Then the income that the non-filing spouses uses for non-household expenses is deducted. This is called “The Marital Adjustment or the Marital Deduction. Here is the United States Trustee’s position on what expenses can be subtracted under the Marital Adjustment:
“All income of the non-debtor spouse should be included, except the following expenses of the non-debtor spouse may be excluded:
1) withholding taxes;
2) student loan payments;
3) prior support obligations;
4) debt payments on which only the non-filing spouse is legally liable and
where the consideration for the loan exclusively benefits the non-filing
spouse. (Credit cards used to pay for household expenses may not be
deducted on Line 17). ”
Click here to view a document that sets forth the United States Trustee’s position.
As you can see, under the right circumstances, and if carefully planned, only one spouse filing for bankruptcy can be a great plan
If you’re filing bankruptcy but your spouse isn’t, do you have to list your spouse’s income? The answer is yes. You list the income of both spouses and the expenses of both spouses. The exception is if you are separated. If that's the case only your income and expenses are listed.
What does “separated” mean?
Effective January 1, 2017 California Family Code 70 reads:
(a) “Date of separation” means the date that a complete and final break in the marital relationship has occurred, as evidenced by both of the following:
(1) The spouse has expressed to the other spouse his or her intent to end the marriage.
(2) The conduct of the spouse is consistent with his or her intent to end the marriage.
(b) In determining the date of separation, the court shall take into consideration all relevant evidence.
(c) It is the intent of the Legislature in enacting this section to abrogate the decisions in In re Marriage of Davis (2015) 61 Cal.4th 846 and In re Marriage of Norviel (2002) 102 Cal.App.4th 1152.
Current family code sections 771, 910, 914, and 4338, which all currently contain the previous language of “living separately and apart”, will now be replaced with “date of separation”, as defined by Family Code 70.