Many couples decide to get divorced and have substantial financial issues prompting the need to file for bankruptcy or continue with the debts. The main concern is, when should a couple consider filing for bankruptcy? It would be in the parties’ best interest to consult a bankruptcy attorney and then a family law attorney for legal advice.
California Bankruptcy
Bankruptcy is a legal process to help debtors (people who owe money) get relief from the debts they cannot pay and, at the same time, help creditors (people who are owed money) get paid from whatever property or assets the debtor has that he or she does not need to live. Also, bankruptcy does not remove all debt, and there are certain types of debt that cannot be discharged (eliminated) in bankruptcy.
California Divorce
There are 3 main ways to end a marriage or registered domestic partnership in California: divorce, legal separation, and annulment. It is not necessary for both spouses or domestic partners to agree to end the marriage. Either spouse or partner can decide to end the marriage, and the other spouse/partner, even if he or she does not want to get a divorce, cannot stop the process by refusing to participate in the case. If a spouse or domestic partner does not participate in the divorce case, the other spouse/partner will still be able to get a “default” judgment and the divorce will go through.
California is a “no fault” divorce state, which means that the spouse or domestic partner that is asking for the divorce does not have to prove that the other spouse or domestic partner did something wrong. To get a no fault divorce, 1 spouse or domestic partner has to state that the couple cannot get along. Legally, this is called “irreconcilable differences.”
When couples file for bankruptcy together, the process can be more efficient because the bankruptcy discharges (wipes out) qualifying debt of the community property, thus reducing the community debt division during the divorce process. Another aspect to consider is the filing fees and costs associated with the bankruptcy and the family law matters. On the bankruptcy side, the fees to file for joint and individual are the same. By filing a joint petition, the process may be more feasible to file together and the stream line the divorce process.
For example, David was ordered to pay the joint AMEX account off during his divorce proceeding with Alexis. David does’t the pay the AMEX bill and unbeknownst to Alexis, files for bankruptcy. Unfortunately, Alexis will still be liable for the debt and the creditor (AMEX) can go after Alexis to collect.
However, if Alexis pay on the AMEX debt, she may have a right for reimbursements from David because of his violation of their divorce judgment. While David filed for bankruptcy, he can discharge his obligation to pay AMEX whereas he is unable to discharge his obligation concerning his divorce judgment. But, as people divorce, generally they sever ties of their interactions as well which may end up costing Alexis more time and money to recoup her losses. As a result, a bankruptcy filing prior to divorce to discharge their community debts might be in their best interest.
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