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California Debt & Divorce

My spouse has big credit card debts and wants to file for bankruptcy. I want a divorce. Which paperwork should we file first?

My husband and I are just starting our divorce. He wants to file credit card debt bankruptcy. I am not a co-signer or applicant on any card. If I file divorce papers before he files for bankruptcy, will this protect me from being connected to his filing therefore hurting my credit? We are in California.

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  • A spouse may be protected by a Chapter 13 bankruptcy filing.

The short answer to your question is, the order in which you file a divorce or bankruptcy does not matter in your situation. I would caution other readers who are in a similar situation but living in another state that the answer may be different.

You mentioned you reside in California. California is a “community property” state, which means that many assets and obligations of one partner created in a marriage become “community” assets or obligations. By extension, this can mean that one spouse can be held liable for many of the debts of the other spouse even if his or her name is not on the accounts which resulted in the debts. The other community property states are Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin and have similar, though not identical rules to the one I just cited.

If the spouses now live in a community property state, or lived in one at the time the consumer debt account (such as a credit card account) was opened, the non-signing spouse may have incurred liability without signing a credit contract as co-debtor. If the debt incurred during your marriage was used for the benefit of both members of the marriage, liability may accrue to the non-signing spouse in community property states.

Regarding a non-signing spouse's liability IF the parties are living in a community property state AND the debt was incurred during their marriage for the benefit of both spouses, AND a spouse is sued and a judgment is rendered for a specific amount owed, the judgment can be collected by wage garnishment against any defendant included in the judgment order singularly or simultaneously. The garnishment amount is normally 25% of net income (that is, after withholding) but this varies from state to state. The creditor does not have any duty to "even out" the judgment liability between the spouses. A creditor has the legal right to collect 100% from either spouse, whichever is more convenient for them.

As a practical matter, even in community property states, many creditors do not go to the trouble of suing both spouses, as doing so tends to complicate the legal process involved in obtaining a judgment. However, this does not mean that a particularly aggressive creditor will not pursue all of its available rights to collect a debt.

One important disclaimer: Community property laws are unique to each state -- no two states share the same laws. The discussion above regarding spousal liability is meant to provide general information about community property as a theory. Your state's laws may vary from the general theory. Therefore, it is important to consult with an attorney in your state who can review the details of your situation and give you accurate and precise advice about your rights and liabilities under your state's laws.

Bankruptcy and Spousal Debt

Now let us turn to bankruptcy. Let us assume one spouse filed for protection under chapter 7 or 13 of the federal bankruptcy code. That filing may not have any effect, positive or negative, on the non-filing spouse. In a non-community property state, the filing of one spouse does not give the other spouse protection of the "automatic stay" (blocking creditors from collection) or the bankruptcy discharge.

You may conclude from this that filing for divorce should occur after the filing for bankruptcy. Perhaps, if you were to delay the divorce filing for as long as it takes to complete the bankruptcy. However, during that time you are both liable for each other's debts during that time, and are not moving ahead with your lives. The facts in each divorce and bankruptcy are different, and you have given me a tiny window into your situation. For this reason alone I urge you to consult with a California attorney who has experience in divorce.

If both spouses are jointly liable to a creditor, the bankruptcy of one does not relieve the other of paying the debt. Upon a bankruptcy, the creditor may look to the other spouse for payment, unless the bankruptcy case is under Chapter 13. If the debt is a consumer debt to be paid 100 percent through the Chapter 13 plan, the co-debtor is protected by the co-debtor stay.

There may be good news for spouses who file for bankruptcy in a community property state. When one spouse files bankruptcy in a community property state, the marital community enjoys the protection of the filing spouse's bankruptcy discharge.

Consult with an attorney to discuss the possible ramifications for both spouses. Bankruptcy laws and courts are federal, but community property and family law vary from state to state. It is important to discuss your situation with an attorney familiar with your state's marital property laws.

Bankruptcy and Judgments

Some judgments cannot be discharged in bankruptcy, including child support, repayment orders dealing with cases of fraud, student loans and some taxes. However, a credit card judgment can be discharged in bankruptcy.

Review the Bills.com bankruptcy help page to learn more about this procedure, what it can do for you, and more on which debts can't be discharged in a bankruptcy.

I hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

www.bills.com/

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6 Comments

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  • BA
    Jun, 2010
    Bill
    As you suggested, each divorce is unique. I see liability for you for the credit card debt in any jurisdiction because it was created in support of the family. The mortgage is an interesting question if you were not a Nevada resident at the time the home purchase was made and no intention to become one. However, because you are considering a Nevada divorce now, I am guessing you are a Nevada resident, so the fact that you may have intended on becoming a Nevada resident may be significant. You have not found answers to these types of questions online because the answers turn on the facts of each individual case. Therefore, consult with an attorney in Nevada who has experience in family law. He or she will be able to interview you, ask probing questions about your situation, and give you precise answers to your questions. I realize my answer here may not satisfy you. However, I would rather give you a non-answer than make many assumptions and make a guess-based answer that leads you astray.
    0 Votes

    • AR
      Feb, 2011
      Adriana
      Sunland, CA
      I have been separated for about a year now and I live in the family home with my two children in California. A loan modification was done in Sept 2010. I have been making the monthly payments on my own timely without the support of my ex-husband. The loan is in his name. I wanted to know once my divorce becomes final, can I purchased the house from him on a short sale? He is filing for bankruptcy for his credit cards debt only, does that affect the home loan? Thank you.
      0 Votes

    • BA
      Feb, 2011
      Bill
      You have three independent events occurring simultaneously, each of which can have a significant impact on your finances, and each can have an impact on the others:
      1. A pending divorce
      2. A soon-to-be-ex-spouse who is about to file for bankruptcy
      3. A desire to refinance the deed of trust on your home in your name

      Any one of these in isolation is manageable, but the three together creates a situation that is, in a word, complicated. I could write a 1,000-word reply to your message that would only begin to discuss all of the what-ifs and possible scenarios your situation presents. Lawyers are taught to isolate and analyze each issue separately, but because of the timing of the divorce and bankruptcy, discussing each alone is difficult.

      You need more help than I can offer via a posting on a Web page. Consult with a California lawyer who has experience in family law.

      0 Votes

  • 35x35
    Jun, 2010
    Anna
    Hello, I have a unique situation and I couldn't find an answer online. My husband and I just got a house in Nevada (community property state) and moved there from another state (non-community). I'm a stay home wife and never really worked. My husband has a lot of credit card debt (mostly house hold items and a car loan) and most of those purchases were made before we moved to Nevada. If he applied for those credit cards in a different state and we decide to divorce, would I be responsible for his debt if we file for divorce in Nevada? Also, the house mortgage is only on his name because I wasn't in Nevada when he bought a house. Would I be still responsible for the mortgage? Thank you, Anna
    0 Votes

  • BA
    Apr, 2010
    Bill
    Consult with an attorney in California who has experience in family law or real estate law. Explain all of the facts you shared above.
    0 Votes

  • EM
    Apr, 2010
    Elizabeth
    my boyfriend is separated from his wife like 2years ago his final divorce was feb/2010. but in the process that time he made his application for divorce in court, at the time of the separation in california, his wife worked refinance home loan.she refinace his father's house without the authorization of his father according to her Cress said after a loan to his father but now she wants my boyfriend to pay half of these 50000dlls. my boyfriend is responsible for that money that was never even asked any authorization he is responsible for that? and he never sign nothing too no matter what they already been separated?my boyfriend is responsible for that money that was never even asked any authorization he is responsible for that?she wants my boyfriend to pay half of these 50000dlls. no matter what they are already been separated?because she back to the court and put a default because she say he not served right the papers and she no longer lived at the address she had written at the beginning of the divorce, and she never delivered the papers returned court.and my boyfriend no had contact with her and the court told him to put the address she was written in the beginning because she never returned the court documents .can he still responsible for that?
    0 Votes

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