Bankruptcy And Divorce

When parties file for a California divorce, one or both parties may be experiencing deep financial problems. Failing finances is a common reason for spouses to file for a California divorce. Community property is liable for debts created during marriage. Community property is also liable for separate property debts of a spouse. The separate property of a spouse is not liable for any community property debts, unless those debts are for necessaries of life, such as hospital expenses and things of that nature. Many times spouses, while married, will attempt to discharge credit card and other debt by filing bankruptcy. Unfortunately, for couples who continue to be married, the filing for bankruptcy by one spouse does not relieve the other spouse of community property credit card and other debt and third-party creditors may look to the community property owned by the spouse who did not file bankruptcy in order to satisfy the community property debt that one spouse mistakenly believes filing for bankruptcy discharged.

Does filing for bankruptcy simplify a divorce? The answer to that question primarily depends on when the bankruptcy is filed. Although filing for bankruptcy may discharge certain debts, a bankruptcy filing, whether it is a Chapter 7 (individual), Chapter 11 (business) or Chapter 13 (payment liquidation plan), does not discharge debts that are incurred by either spouse for spousal support or child support. If the . parties own real property together filing bankruptcy by one spouse may expose that property to creditors if there is equity in the real property.

If you should consider filing bankruptcy and you are either involved in a California divorce or . are contemplating filing for a California divorce you should, before filing the bankruptcy, consult with Nathan James of SEIFER, MURKEN, DESPINA, JAMES and TEICHMAN, ALC so as to obtain comprehensive advice on how such a bankruptcy filing could affect your California divorce case, including the payment of spousal support, child support, and how assets may be divided and who will be responsible for paying community property debt. Before initiating a divorce or bankruptcy, you should consult an experienced family law attorney.

Nathan James has represented both creditors and debtors in bankruptcy proceedings and has obtained relief from . the automatic stay a bankruptcy proceeding imposes. It is very important to make sure that when negotiating a property settlement that the California divorce client is protected as much as possible from third-party creditors that may seek payment for debts created during marriage. One of the ways to protect a spouse from debt created during marriage is to have a premarital agreement or post marital agreement that assigns debt created during marriage to the spouse incurring the debt as his or her separate property debt and further provides for some type of indemnification and hold harmless provision that protects the spouse who did not create the debt.

Nathan James represents parties who are contemplating or actually have filed for a California divorce in San Francisco, Marin, San Mateo, Alameda, and the other Bay Area counties including individuals who may be struggling due to a very high debt load notwithstanding the fact that they may also be high income earners.

A Common Question For Those Considering Filing For

Bankruptcy Protection Is--Should I File For Bankruptcy

Before Or After Divorce?

After engaging in the practice of family law for the past 38 years and having experience with spouses who are contemplating filing for a California divorce or who have already filed for a California divorce, and who are experiencing a high debt load, a very common question is: Should I file bankruptcy before or after I obtain a California divorce? In my experience, there are many reasons why a spouse or both spouses should file bankruptcy prior to filing for a California divorce. The most common reasons for that answer are as follows:

 If joint debt is discharged prior to either party filing for a California divorce that could result in one less issue (i.e. allocation of debt) that needs to be litigated in the divorce proceeding.

 If you file bankruptcy and discharge your debt, you will not be responsible for that debt if your spouse thereafter files bankruptcy.

 Filing a bankruptcy and obtaining a discharge of unsecured debts, such as medical bills and/or credit cards and other debt may allow for the parties to reduce their ongoing monthly expenses thereby improving their standard of living, for both parties, if they should file for a California divorce.

In my experience most individuals do not realize they are personally responsible for debts incurred to third parties even though those debts are to be paid off by the other spouse as set forth in a fully executed Marital Settlement Agreement. Spouses should realize that third-party creditors may seek collection from the spouse who thought he or she was not responsible for the debt because the other spouse promised to pay the debt in the Marital Settlement Agreement, but instead files bankruptcy to avoid those debts. One of the ways to protect a spouse from collection actions by third-party creditors for the other spouse not paying a debt or debts he or she promised to pay in the Marital Settlement Agreement is to cause for the defaulting spouse to reimburse the other spouse by characterizing the reimbursement as spousal support, which would be non-dischargeable in bankruptcy.

I have seen parties file for bankruptcy protection after one spouse files for a California divorce. As stated above, filing for bankruptcy creates an automatic stay which prevents any person or entity from pursuing any legal action against the person filing for bankruptcy. In order to continue with the dissolution action, the non-filing spouse will need to seek relief from the automatic stay from the bankruptcy court in order to pursue the California divorce in the state court. One spouse filing bankruptcy will cause delay in the California divorce action and may also cause creditors to pursue collection against the spouse in the California divorce that did not file for bankruptcy. Frequently, after one party initiates divorce, the other party subsequently files for bankruptcy.

Filing A Joint Petition in Bankruptcy Before Filing Your

California Divorce

Married persons may file what is known as a “joint” bankruptcy petition detailing all of the debt that they jointly owe or they may individually owe. If there are community property assets, the equity of which exceed debt, after exemptions, the third-party creditors may seek to obtain some or all of those assets in liquidation of debts that are claimed in the joint bankruptcy petition. Nathan James and SEIFER, MURKEN, DESPINA, JAMES and TEICHMAN, have resources to assist you in contesting a bankruptcy petition filed by a spouse, or if necessary, refer you to a lawyer who specializes in bankruptcy to address certain of these issues.

Nathan James of SEIFER, MURKEN, DESPINA, JAMES and TEICHMAN, ALC serves San Francisco, Marin, San Mateo, Alameda and other Bay Area counties representing clients in California divorce actions and dissolution of domestic partnerships proceedings, and has extensive experience and knowledge in the area of bankruptcy and California divorce actions. Contact Nathan online or call 415-749-5900 to schedule a confidential consultation.

This is intended to be a summary description and should not be relied upon as legal advice. More information may be obtained by consulting with Nathan James.