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How Filing for Bankruptcy Could Affect Your Spouse

Posted on Wednesday, July 9th, 2014    

When filing for bankruptcy, there are many things to consider and many possible outcomes and consequences. One important consideration is the effect bankruptcy may have on your spouse. Even if you file for bankruptcy as an individual, your spouse could still be affected. To determine how your spouse may be affected, it is important to know if your state is a community or common law property state.

Community vs. Common Law Property States

State laws determine which rights you have on property acquired during a marriage. Community property states deem that the majority of property acquired during a marriage is equally owned by both partners, no matter whose name is on the title. A common property state, on the other hand, follows the rules of equitable distribution.

California is currently one of nine community property states in the US. In community property states, both spouses jointly own most property acquired during the marriage unless agreed to otherwise. Separate property can include inheritance, property belonging to one spouse without benefit to the other, certain personal injury awards, gifts, and property owned before the marriage. Most other assets attained during the marriage are considered community property.

What Happens To My Spouse During Bankruptcy?

Even if you file bankruptcy as an individual, most of the assets acquired during your marriage are subject to bankruptcy, with the exception of the above. However, your spouse may still be required to disclose his or her personal property for the trustee to check to ensure it is separate property.

The spouse filing for bankruptcy will receive a discharge of debt, just as he or she would in a common law property state. All community property would be discharged, meaning that it is off- limits to creditors. Thus, the spouse would remain liable for his or her own debts, but would also have any community debt removed. This is known as a phantom discharge, and will last as long as both spouses are alive and married.

Because bankruptcy law can be complex and confusing, as well as different from state to state, it is important to seek experienced help when considering filing. Bankruptcy is also a serious legal matter, so those who are considering bankruptcy are encouraged to hire an experienced and knowledgeable bankruptcy lawyer like those at Amerio Law Firm in Sacramento. With years of experience in California bankruptcy law, the lawyers at Amerio Law Firm will help you explore the various types of bankruptcy as well as bankruptcy alternatives to determine the best course of action for your unique debt situation. Put an end to harassing creditor calls and overwhelming debt by seeking the experienced legal counsel of Sacramento’s bankruptcy lawyers at Amerio Law Firm.

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