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Should I File for Bankruptcy Before or After My Divorce?

April 26, 2019 //  by Kevin Roux//  Leave a Comment

Jared and Reina have been married in California for 10 years and decided to file for divorce. Jared works for the State and Reina works for a private marketing firm. They both have acquired substantial assets during their marriage but are struggling to pay their bills.

Should the couple file for bankruptcy before or after they divorced?

Bankruptcy in California

A Chapter 7 Bankruptcy allows the petitioner to wipe out their debts and get a “fresh start.” Chapter 7 bankruptcy is a liquidation where the trustee sells the assets and pays you, the debtor, any amount exempted.

A Chapter 13 Bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.

The state of California is a community property state, which means the law presumes all property acquired during a marriage is owned equally between both spouses.

This means that each party equally owns all money earned, saved, and invested since the start of the marriage to the date of separation. As a result, during the dissolution process, the parties must divide marital property equally prior to judgment. The length of a marriage does not affect the division of marital assets and debts.

CA Fam Code § 760 – Community Property

760. Except as otherwise provided by statue, all property, real or personal, wherever situation, acquired by a married person during the marriage while domiciled in this state is community property.

One of the biggest headaches during the divorce process is splitting up property for purposes of equitable division. As Divorce is an emotional process already, imagine having to assert what is “yours” and what’s “theirs.” What you are willing to give up?

Together, Jared and Reina have accumulated over $60,000 in debt, not including their student loans or mortgage. With their combined student loans and mortgage, they are hovering around $650,000 in debt.

Exemptions

Exemptions describe the possessions you get to keep when you file bankruptcy. The right to keep some assets away from your creditors is grounded in the idea that a debtor needs something with which to start over. When a debtor designates some piece of property as exempt, it leaves the bankruptcy estate, that mythical pile of possessions that the debtor entered bankruptcy with. Neither the creditors nor the bankruptcy trustee can take exempt property from the debtor.

Unfortunately, choosing the exemptions is where many petitioners filing for bankruptcy without attorneys get into trouble. The trouble doesn’t arise when filing your paperwork, it arises that people are unaware of the legal process and leave themselves vulnerable to something they might have been able to keep had they known the laws. This is why it is important to either conduct thorough research prior to filing or retain a bankruptcy attorney.


Jared wants to file for divorce and split the assets and debts during the dissolution. Whereas Reina wants to file for bankruptcy to rid the marital debts so she is able to start over. Which process will be most successful?

Consult with a family law attorney for those answers.


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