I have been asked this question a thousand times. The quick simple answer is “no”. There is no law that requires both spouses to file for bankruptcy when one spouse needs to file. However, it is not as simple as that. The first thing to consider is if the “non-filing” spouse co-signed on any of the filing spouses debts. If so, then it would probably be beneficial for both to file jointly. If not, the creditor will more than likely just continue collection efforts against the spouse that did not file.
If the “non-filing” spouse did not co-sign for any of the debts, than the next question is if the “non-filing” spouse has any debts of their own. If so, then again, they may want to file jointly to get a much cleaner “fresh start” after the bankruptcy discharges. Otherwise, after the spouses bankruptcy is completed, they are still having to make payments on their own debts which may eventually lead to them having to file their own bankruptcy later.
If the “non-filing” spouse did not co-sign for any of the debts, and has little or no debt of their own, then they may consider not filing with their spouse to keep their credit score in tact. However, and this is where the fun begins, they may end up having to pay for their debts anyway!
You heard right. The non-filing spouse could be held responsible for the debts of the filing spouse, even though they had nothing to do with those debts! How does this happen?
Community Property. For those of us lucky enough to live in the Golden State, be aware, California is a community property state. When people think of community property, they think of houses, cars and bank accounts. But what most people do not consider is that debts are also considered to be community property! Yikes! So legally speaking, absent a Prenuptial Agreement, debts that are incurred during marriage are the responsibility of both spouses! But before you run off to file for divorce there are many other factors to consider.
The real consideration is “can they” versus “will they”
Can they pursue me? If you live in a community property state, then yes it is possible. Laws vary from state to state so as in any legal matter, it is best to consult a local attorney.
Will they pursue me? Probably not. But why not? Community property laws are very very tricky. And are very difficult to enforce. The same law that says they can pursue you also says that they cannot. What does this mean? As an example….lets say your spouse files for bankruptcy and you live in a community property state. The creditor may decide to call you trying to collect, they may even go as far as to sue you in court. But it would be very difficult for them to collect. They could try to garnish your paycheck, but your paycheck belongs to your spouse due to community property laws. And since your spouse filed for bankruptcy, they cannot garnish any of his income (including income from the non-filing spouse) They could try to levy your bank account, but if your spouse is also on the bank account, then again they cannot touch it.
So community property laws are tricky and most creditors do not want to deal with it. They typically will simply close the file once they receive notice of a bankruptcy filing and the debt goes away. So, while not filing may be a gamble, it is a small gamble. And in the worst case scenario, if a creditor is getting aggressive with the non-filing spouse. They could always turn around and file a bankrutpcy case themselves.
When you are considering filing for bankruptcy, it is best to speak to an attorney.They will be familiar with local laws and can go over which options best fit you and your families needs.
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