Bankruptcy has a ripple effect on the entire family. The filing is a benchmark moment for the financial success of everyone in the household, even if only one person in the family pursues bankruptcy.

A common question families have is how one spouse filing for bankruptcy will impact the other spouse. Will the non-filing spouse’s debts be impacted? What happens to debts owed jointly? What about assets? These are all important questions we want to help you answer so you can make the best decision for your family.

Non-jointly held debts will not be discharged

When you file for bankruptcy, it’s exclusively your debt that is up for consideration. Even if you and your spouse work on paying each other’s debts and hold yourselves personally accountable for debts not in your name, the courts will not consider these.

You should take a thorough approach to your own finances before filing and understand the debts that don’t have your own name assigned to them. If you and your spouse would like for these debts to be considered you will need to file together.

Jointly held debts are more complicated

When one spouse files for bankruptcy but holds debt jointly with their spouse (or another person), the filing individual’s responsibility for the debt will be discharged (unless the debt is nondischargeable). This means they are no longer responsible for the debt, but the debt doesn’t disappear entirely. Instead, some or all of the debt will be shifted to the responsibility of whoever jointly held the debt with them.

When someone files for bankruptcy, all of the creditors they owe a debt to will be notified. This means they’ll be made aware that only one of the two “owners” of the debt has discharged their responsibility. This could lead to creditors going after your spouse to collect the debt, and it could also negatively impact their credit in the process. In Chapter 7 bankruptcy cases, the creditors may pursue your spouse immediately. In Chapter 13 bankruptcy, the court places a stay preventing the creditors from approaching your spouse to collect the debt while the Chapter 13 process plays out.

Your spouse’s property could be used to pay off debts

California is a community property state. This means any property either of you acquired throughout the time of your marriage will be assumed to belong to both of you unless specifically stated otherwise. Even if only one spouse’s name is on the title, such as the title of a home or vehicle, the bankruptcy court may still consider these assets for use in paying off your debts.

When you liquidate assets in Chapter 7 bankruptcy, the court will come after all your non-exempt assets to satisfy as much of your debt as possible. It’s not a guarantee your spouse’s assets will be involved if you’re not on the title, but it’s entirely possible and a situation you should both prepare for.

The best way to protect yourself and your family through the bankruptcy process is to hire an experienced bankruptcy attorney. Hedtke Law Group has the expertise needed to help you and your family navigate this journey to a new start. Contact our offices and let us get a thorough overview of your situation.