California Laws on Community Property in a Bankruptcy

Marital Property Rule

All marital property is considered community property in California. Thus, all property either party to the marriage owns becomes part of the bankruptcy estate, even if only one person files for bankruptcy. For example, if a spouse files for bankruptcy in California and his partner owns a vehicle, that vehicle becomes part of the bankruptcy estate unless the filing spouse is able to file an exemption for it.

If you file for bankruptcy, your spouse's property is protected after discharge as well as your own. For example, once you file for bankruptcy, creditors cannot come after your spouse's bank account or assets. Thus, you can file for bankruptcy on your own if need be and protect both yourself and your spouse from negative financial consequences related to debt that either of you cannot pay. However, if you do this, creditors can still go after any non-community property your spouse has for his debts.

As of the time of publication, California law holds both spouses accountable for each other's debt if they incurred the debt after they were married. Thus, if your spouse incurs a huge amount of debt it may be worthwhile to file for bankruptcy. California allows you both to file for bankruptcy; your spouse can also file for bankruptcy alone on her debts. Consult a bankruptcy attorney to determine the best option regarding bankruptcy filing in this type of situation.

Bankruptcy may not affect both people's credit equally. Although community property laws in California protect both spouses' property equally after bankruptcy, the Moran Law Group reports that bankruptcy courts may not go after both parties personally for one party's debt. Thus, in some cases one spouse's bankruptcy will not affect the other spouse's credit despite community property laws. For this reason, it may be better for one spouse to file for bankruptcy if he carries most of the debt.