In California, do I have to count my spouse’s income when I file bankruptcy?
Married people can file bankruptcy jointly or separately, but the income and assets of the community are subject to the jurisdiction of the bankruptcy court either way. You cannot avoid listing your spouse's income on the petition simply because he or she does not choose to file with you. In a California, the court will determine your ability to repay debts based on both your incomes regardless of whether your spouse files with you.
There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. If you live in one of these states, your spouse’s income and assets will be considered in determining how much of your debt you should repay.
Sometimes it makes sense for one spouse to file and for the other not to file.
There are reasons that only one party in a marriage will choose to file. For example, the non-filing spouse may have little debt while the filing spouse has a substantial amount of debt. If one party has a good credit score, that party may decide not to file while the other decides that a bankruptcy filing is desirable. These situations often come up where the parties have recently married, and one party had debt prior to marriage but the other party did not.
I often advise a client who is considering marriage and has substantial debt, to file bankruptcy before getting married. Sometimes the single person's income is low enough to qualify for a Chapter 7 which frees that person of unsecured debt prior to the marriage. When a couple marries, both spouses’ incomes become community property. Combining their incomes may make both ineligible for a Chapter 7. The additional income may force them into a pay-back plan or may make them ineligible to file at all. Marriage does not make the new spouse responsible for the other spouse's pre-marital debts, but the total income of the community will be used in calculating how much of that debt must be repaid. In a Chapter 13, the income of both spouses is used in calculating the plan payment, even if only one spouse incurred the debt.
How does my bankruptcy filing affect my spouse if we have joint debts?
If one spouse files bankruptcy and the other does not, the non-filing spouse is still responsible for joint debts even though the filing spouse obtains a discharge and is no longer liable. I generally advise both spouses to file bankruptcy if they have a significant amount of joint debt. Whether they both file or not, both of their incomes and their assets come into the bankruptcy when one of them files. Filing together usually reduces court costs and attorney's fees since only one petition needs to be filed.
This article is not to be considered a legal advice in any particular situation. If you are considering bankruptcy, consult an experienced bankruptcy attorney in your state for advice on your specific situation.