How Does Bankruptcy Affect a Spouse in California?

If one spouse files for California bankruptcy, the other spouse is not automatically brought into the bankruptcy. How a bankruptcy affects a spouse depends on whether the spouse files separately or jointly. Deciding which is the right thing to do depends on the financial circumstances of both spouses. It's important to understand the issues involved to protect the best interests of both individuals' finances.

Filing Separately or Jointly

In their book "Chapter 13 Bankruptcy," attorneys Stephen Elias and Robin Leonard suggest that most spouses will want to file bankruptcy jointly if the finances of both spouses are completely mixed and the debts are shared. A separate filing works best if a spouse has previously filed bankruptcy, or most of the debt is in one spouse's name, or if the spouse without debts has highly valued assets or inheritance.

Liability

Under California law and that of most states in the nation, marriage does not make both spouses responsible or liable for all debts. If only one spouse files on a debt that is shared by both, the other spouse will not be protected and will still need to meet the responsibility of the debt.

Cosigned Debt

If your spouse has co-signed or guaranteed your debt, collectors can pursue him if you file for bankruptcy but your spouse does not.

Supplementary Credit Card

Having a supplementary credit card is very common in many credit-lending relationships. One spouse opens a supplemental credit card account, but the other is authorized to use it. If your spouse has used the credit card, he is responsible for the entire debt on the card.

Affect on Spouse's Credit Rating

If there are no joint debts, your California bankruptcy has no effect on your spouse's credit rating, strictly speaking. Your bankruptcy, however, can affect your ability to be a co-signer on a loan in the future, which would indirectly have an effect on your spouse's credit.

Exemptions Allowed

Whether you file bankruptcy jointly or separately, you and your spouse are entitled by the state of California to a number of exemptions. This includes up to $75,000 in equity in your home, and up to $150,000 if you or your spouse are disabled or on a low income. You and your spouse can also exempt up to $2,300 equity in one or more cars. Seventy-five percent of your salary in the last 30 days that have not yet been paid is also exempted. You're also entitled to exempt up to $6,075 in jewelry, heirlooms and works of art.