Statistics show that California has a higher divorce rate of 60% compared to the national average, which is about 50%. There are many reasons why a couple would want to get divorced and in California, one of the common reasons is irreconcilable differences between the two parties. So many things happen before, during, and after a divorce and one of the most stressful things that could prolong the process is if one partner files for bankruptcy. Before this complicates matters further, it would be advisable to talk to a San Diego Bankruptcy Attorney on matters around bankruptcy and divorce to understand your options.
Bankruptcy and Divorce
Getting divorced is one of the hard moments for a couple that swore to stand by each other in good and bad times till death do them part. The process could get even complex and it can be overwhelming for a couple that is still struggling emotionally and even financially. The last thing anyone who is getting divorced wants is something that could prolong the matter further. As long as you have made up your mind, it helps to speed up the process once and for good and get it done as soon as possible so that you can get back to your normal life.
However, if one partner decides to file for bankruptcy in the middle of the divorce proceeding, you can expect that the process will take a long time to resolve. Depending on the nature of your divorce case, filing for bankruptcy in the middle of a divorce proceeding can complicate matters so much, especially matters pertaining to the division of property.
Debts in Marriage
In marriage, both partners are liable for the debts they incur, just the same way they get to enjoy the assets they accumulate together. Being a community property state, California laws require both parties to be accountable for all debts accrued by either of them during marriage. This should apply regardless of whether it is you or your spouse that is personally responsible for the accumulated debts.
These things are not considered so much in depth in marriage because much of the time, the couple work together to manage the family finances. Part of the income the family gets is what is used to pay the debts. However, when the couple is getting divorced, the issue about who is liable for a specific debt comes up. The main question that comes to mind during this time is about the debt owner and who should be liable for that debt.
It is unfortunate to note that divorce and bankruptcy go hand in hand in California. It is not always easy to find an income from one source that is enough to sustain two homes, which is what happens after divorce. If your family had debts, what you find after property division is that one or both partners may be facing bankruptcy. This is the most challenging thing that could happen to any divorcing couple.
During divorce settlement, the goal of California family courts is usually to have both parties leave their marriage with at least half of the family debts and half of the family assets. However, it is not usually the mandate of the courts to do this for the divorcing couple. In most cases, the judge will recommend mediation, so that the couple can come up with a solution that works for both of them.
The Liability that Comes with Divorce
Assets and debts are both parts of a divorce settlement in San Diego. The law requires both of them to be split equally between the two partners, after which the community property will come to an end. Once the assets have been divided, anyone who is owed by one partner alone will not seek compensation from the other partner’s share of the property. The partner in debts will not seek the help of the other partner in repaying his/her debts.
However, the problem comes in marital debts. The couple may agree to divide the debts but this does not stop their creditors from seeking repayment from the other spouse, especially if both parties signed when the debt was being incurred. What this means is that both parties will be liable for all the debts until they are cleared.
If, for instance, a partner (husband) was assigned a debt during divorce settlement and is unable to repay that debt, the creditor may sue the other partner (wife). The other partner (wife) may bring the husband into the lawsuit as he is legally the one responsible for that particular debt. When this happens, the court can order the husband to clear that debt and indemnify the wife for any legal actions that could arise from his failure to pay that debt. Things will happen the same even if the husband filed for bankruptcy after the divorce.
Bankruptcy and Divorce in California - The Right Time to File for Bankruptcy
When a person files for bankruptcy in California, everything they own as well as all their debts are frozen by the court until the bankruptcy case is determined. If bankruptcy is filed in the course of getting divorced, it means that property division will be halted too. Once you file for bankruptcy, there will be the creation of a bankruptcy estate that will include various types of properties including family assets. All debts owed by the person filing for bankruptcy will be cleared using money obtained from the bankruptcy estate before the bankruptcy case is determined. This means that before a family judge decides on the divorce matter, the bankruptcy court will be given time to finalize the property issues. That is why the divorce process could be delayed if one or both partners filed for bankruptcy in the process of getting divorced.
The safest way out for a couple that has lots of debts is to file for bankruptcy before they file for divorce. The couple has to be in agreement on this matter though, and with the counsel of a San Diego Bankruptcy Attorney, they can both agree to file for bankruptcy, and then file for divorce afterward. This would work for both parties since family debts are divided equally in a divorce settlement in the state. If one partner were to file for bankruptcy after divorce, the other partner will be required to pay off the debts because the bankruptcy court will only discharge the debts for the only partner who filed for bankruptcy.
Note that bankruptcy does not affect other terms of a divorce settlement including child support, visitation and child custody. Regardless of whether one partner is bankrupt or both of them have already filed for bankruptcy, the court will still demand the payment of child support when need be. If the court has already declared payment of child or spousal support payments, the partner required to make these payments will not escape them even if they have already been declared bankrupt. Such payments are considered as nondischargeable under California Bankruptcy laws both in Chapter 7 and 13. Other debts that will arise after a divorce, considered as non-support payments could be discharged in bankruptcy, but it all depends on the nature of the debt.
Bankruptcy and Divorce as Provided Under Chapter 7 and 13 of California Bankruptcy Laws
Bankruptcy is the legal process that a person who is unable to repay his/her debts undergoes in order to get a fresh monetary start. Everyone has a right to file for liquidation in California under the federal law, and such issues are handled in a federal court. If a person is able to file for bankruptcy immediately, they are able to stop all their creditors from pursuing them for payments at least until they are able to sort out their financial standing in accordance with the law.
For a person or couple seeking a divorce, filing for bankruptcy will help in the following:
- It will eliminate a couple’s liability to repay part, most or even all of their debts. This way, the couple can enjoy a fresh monetary start after divorce, once all their debts have been discharged
- It can put a stop to foreclosure on your family home and allow the couple time to catch up with all the payments they have missed. If there are children involved, this is a good thing as they are able to stay in the home they are attached to after the divorce
- Filing for bankruptcy can prevent the repossession of your assets such as cars. If the assets have already been repossessed, your creditors may be compelled by the court to return them
- The couple can enjoy some peace of mind after divorce because then they won’t have to deal with harassment from debt collectors and other actions taken by creditors when collecting their debts
There are two main types of bankruptcy that a couple getting divorced can file for:
Bankruptcy under Chapter 7:
This is the straight type of bankruptcy. Filing for this type of liquidation will require you to give up part of your assets for the repayments of your debts. In divorce, part of the family property that exceeds exemptions can be sold so that the debts incurred by the couple while still married could be repaid. This is not a good choice if the couple still wants to keep some of their valuable assets such as their car or home.
Bankruptcy under Chapter 13
This is the debt adjustment type of bankruptcy. This type of liquidation will require you to come up with a plan through which you will repay all your debts or part of the debts from your current income. The court will give you between 3 and 5 years to clear part or all of the debts through this plan. This type of liquidation allows the couple to keep all their valuable assets such as their cars and residence as long as they are able to make the payments to their creditors as the law requires.
What Properties Can One Keep After Bankruptcy?
There are certain properties that the law calls exempt for anyone that is filing for bankruptcy under chapter 7. These will be exempted from any claims by your creditors. In determining the assets that will be exempted from repaying your debts, it is important to note that the value of an asset will be determined not by the amount of money you bought it for but by its current worth. The value of your car, for instance, will be significantly less than its value when you bought it. On the other hand, your house could be worth more than it was bought for and so, could fetch you some equity if you sold it.
However, the value of your assets will not stop your creditors from repossessing the assets to cover what you owe them if those assets are not exempted. Your car or home could be repossessed in chapter 7 case, but not in the case of chapter 13 if the plan you device meets the necessities provided by the bankruptcy law.
If your equity in any asset is fully exempt, you may not lose that asset. What will be required of you is just to pay the asset’s non-exempt value, even if the asset was not fully exempted. Be careful though, because some of the people you owe may have some security interests in some of your valuable assets such as your car or home. Unfortunately, bankruptcy will not make those security interests diminish. If you are unable to raise the non-exempt fee for an asset that is not fully exempt, your creditors may repossess and then sell the asset during or even after bankruptcy.
Frequently Asked Questions on Bankruptcy and Divorce
Can one file for divorce and bankruptcy at the same time?
Yes, you can, but for simplicity's sake, it is advisable to file for one at a time. Overlapping two or more legal matters can complicate things further and prolong the process more than the couple is willing to endure. As explained above, it would be easier for both partners to agree to file for bankruptcy before filing for divorce. Once all the assets are frozen, the couple can proceed to file for divorce and the process will be smoother. In addition to this, the cost will be reduced if the couple was planning to file for bankruptcy separately later on. When they do this together, they will only need to pay the services of one attorney and pay the filing fee just once.
Note that not all couples will agree to file for bankruptcy together before the divorce. Depending on your situation, you can file for divorce first or later, but not at the same time.
Which type of bankruptcy is best for a faster divorce process?
If the couple is in a hurry to dissolve their marriage, Chapter 7 bankruptcy is the best one to go for. Chapter 7 has an advantage over chapter 13 in that its process is easier and faster. Once the bankruptcy court lists down the bankruptcy assets, it will only take 3-6 months to discharge all those assets to take care of your debts. After that, the couple will be free to file for their divorce. Chapter 13 will give the couple between 3-5 years to repay their debts, which can keep you waiting for a much longer time to get divorced.
Are all debts included in bankruptcy?
In bankruptcy, not all debts are dischargeable. There are those debts that are non-dischargeable, which cannot be forgiven even when one files for bankruptcy. The couple will still be responsible for those debts. Some of the non-dischargeable debts are child support, alimony, student loans, fines that the couple owes government agencies, fines, and penalties owed to the courts, attorney fees for cases such as child support and child custody among others.
Can the court deny a couple’s request to discharge their debts?
Yes, there are rules that are listed in the Bankruptcy Code that debtors are required to abide by for the court to approve their request. A chapter 7 bankruptcy request may, for instance, not be accepted if the couple:
- Fails to provide all the required tax documents
- Violates an order by the bankruptcy court
- Hides some of the properties just so they can defraud their creditors
- Destroys financial records or books
Find a San Diego Bankruptcy Attorney Near Me
Divorce and Bankruptcy are both chances for people to start life afresh. Some divorce cases go hand in hand with bankruptcy and in such cases, a person working on his/her own may have a hard time trying to get through two difficult and complex processes. Many things are required when one wants to file for divorce and bankruptcy together and an experienced bankruptcy attorney will be able to offer you the advice and support you need. Call our bankruptcy lawyer in San Diego today at 619-488-6168 and let us guide you through the process for a smoother outcome.
