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How Does Bankruptcy Affect My Non-filing Spouse?

spouseIf you file Chapter 7 bankruptcy without your spouse there are some ways it may impact them. The first thing to keep in mind is that California is a community property state which means that the impact on your spouse may be significant.

Not Required To File

Filing bankruptcy will not automatically force your spouse into also filing Sacramento  bankruptcy. They are not required to file bankruptcy just because you’re filing.

Bankruptcy Estate

Any community property—property owned by you and your spouse WILL automatically become part of the bankruptcy estate. This means that while your spouse owns 50% of the community property, 100% of the community property value can be used to repay your creditors if the property is not covered by exemptions.  However, any property owned solely by your non-filing spouse will NOT become part of the bankruptcy estate. California law defines separate property as any assets acquired before marriage, as a gift during marriage, and any inheritance.

Automatic Stay Protection

In certain instances, your non-filing spouse will benefit from the bankruptcy automatic stay.  Creditors who have a claim against your non-filing spouse cannot attempt to seize any community property in bankruptcy. A matter of fact, creditors of your non-filing spouse have no power to seize community property even if that property is acquired after your bankruptcy discharge—but that’s only if the creditor had a claim against your non-filing spouse at the time that you filed bankruptcy.

Still On The Hook

While California law will protect community property from your non-filing spouse’s creditors, your spouse is still on the hook for paying any jointly held debts and any debts solely in their name. This means that your bankruptcy could discharge your obligation to pay a jointly held credit card, but your non-filing spouse would still be responsible for paying the debt.

Credit Reports

While each person (even married people) is supposed to have a separate credit file, it’s possible that in rare cases your bankruptcy filing may be mentioned on your non-filing spouse’s credit report. This can sometimes happen if your joint credit accounts were discharged in bankruptcy. If this happens, your spouse should immediately contact the credit bureaus to dispute the notation. Your bankruptcy should not show up on your non-filing spouse’s credit report.

Future Credit

While your non-filing spouse’s ability to get credit won’t be directly impacted by your bankruptcy, it may be a challenge to get future joint credit accounts. Since lenders will look at the credit history of both co-applicants, they may deny a credit application if your credit history doesn’t meet their standards.

If you’re concerned about how your Chapter 7 bankruptcy will impact your non-filing spouse, contact me today.

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