Bankruptcy and discharge of bankruptcy can be fairly straightforward when a couple is married. When one spouse files for bankruptcy, their discharge protects the couple’s community assets. As long as the couple is married throughout the process, that’s pretty much the end of the story.
Things get a bit trickier when the couple is legally separated or divorced during the bankruptcy process. In California, the key is that this is a community property state. Simply stated, in community property states, most debts incurred by either spouse during the marriage are owed by the “community” (the couple), even if only one spouse signed the paperwork for a debt. Likewise, discharge of debt through bankruptcy also applies to the community property.
But let’s go back to that phrase “during the marriage.” One spouse’s discharge of debt does not necessarily discharge the debt for the other spouse when they’re legally separated or divorced. Creditors have every right to pursue debt collection from you because the discharge applied only to your spouse’s liability. Which means, in this case, the safest course of action may be to file your own individual Chapter 7 bankruptcy in order to discharge your personal liability on the debt.
There are also other options. After a divorce, you might be able to sue your spouse on the debt. This is particularly possible if the court views your legal liability on the debt as a domestic support obligation that was not discharged as to your spouse.
As you can see, though, bankruptcy that involves a divorce or legal separation can be a complex matter. If you’re in this situation, give us a call. That’s the first step toward making sure you’re free and clear of obligations that your spouse may have incurred but you’re still liable for.