In a community property state, such as California, spouses share assets and debts acquired during the marriage equally. In addition, a related topic is debt in divorce/bankruptcy. What occurs when a spouse declares bankruptcy? Should the couple jointly file? Which is preferable, filing for bankruptcy before divorce or vice versa?
The answer to this question may depend on the nature of the relationship. If it's sour and one spouse wants nothing to do with the other, the answer to the query of whether a spouse should file for bankruptcy before divorce is yes. Filing for bankruptcy and receiving a discharge would resolve financial/debt issues prior to entering the far uglier arena of divorce. Being legally married would make it easier for the filing spouse to negotiate the division of remaining debts, but if the relationship is amicable, filing jointly is preferable. It is genuinely advantageous for both parties, unless the other spouse files first.
So, what happens if one spouse applies for bankruptcy before the other?
If one spouse files for bankruptcy and receives a discharge, creditors and debt collectors will pursue the other spouse to collect the remaining debts that remain under both of their names. Before filing for bankruptcy or divorce, obtain/open separate accounts and terminate the joint accounts to avoid this scenario. Unless, once more, the couple's relationship is relatively healthy and they file jointly.
Exists a solution to divorce-related debt other than bankruptcy?
If the debts are unsecured, neither partner is required to file for bankruptcy. If the debt is greater than $10,000, debt settlement may be preferable to bankruptcy, as it does not require court involvement and is much less damaging to credit.
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I have never been concerned about owing money so long as I knew where it could be repaid. Colonel Henry Crown""
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