An Overview of Community Property and Its Implications under California Laws
Emergencies are some of the leading economic and financial constraints driving up the rates of bankruptcies in the US. However, family issues such as divorce cases account for a significant number of bankruptcy cases filed in the country. Different states have within their civil structures laws and guidelines to drive divorce proceedings when bankruptcy is involved.
In California, unlike other states, federal bankruptcy laws are not incorporated in the civil codes. Thus one would not be able to apply for bankruptcy in the state using the federal regulations. Instead, they would have to tailor their plans to match the permissible terms as per the state rules.
When it comes to bankruptcy filing due to domestic issues such as divorce, the California state laws permit spouses to file for bankruptcy either individually or jointly.
Thus if one is to opt to file for bankruptcy separately, the couple’s property would be protected as though it were joint, effectively preventing the action of creditors against such property. However, this would mean that the spouse would not be allowed to file for the same on their part.
The benefit of this arrangement is that such a development would not affect your spouse’s credit reports in any manner as it would your own.
Being a community property state, California laws recognize property acquired during the marriage as belonging to both partners. Such property thus would be known as being part of your bankruptcy estate regardless of who filed for the motion, thereby exempting much more wealth than would be possible in a common-law state.
Filing for bankruptcy separately, however, would mean that only the party initiating such a motion would get a discharge. The risk, therefore, is that the other non-filing spouse would lose the benefit of this arrangement in case you are to separate or if one dies.
Another limitation of this arrangement is that it would not protect the separate property of the non-filing spouse if they were also liable for the debt.
Though such laws regarding community property as in California serve to benefit both spouses without having to apply for bankruptcy jointly, the clause is subject to various limitations that have to be considered beforehand.
It would thus be advisable for a couple filing for bankruptcy due to divorce to look up other alternatives that would protect their individual property without affecting the interest of the other. Better still, it would be advisable that both parties understand the limits of such an undertaking under the California laws beforehand to avoid future inconveniences.