One of the first questions married couples facing bankruptcy ask their attorney is usually “do we both need to file?"
The primary reason for this question is that couples often hope to protect one spouse's credit by having only the other spouse file. However, if the spouses are filing the bankruptcy in a community property state, such as California, it is usually best for both of them to file bankruptcy together, if they have been married for a period of time. The reason is that by virtue of the community property and community debt laws in place, the non-filing spouse will continue to be legally responsible for the marital debts that have been discharged in the filing spouse's bankruptcy, even if those debts were only in the name of the spouse who filed bankruptcy. In a community property state, such as California, a debt incurred by either spouse, during the marriage, that is for the benefit of the community, is the legal responsibility of both spouses, regardless of whose name the debt was incurred under. Further, only the spouse who receives the discharge in bankruptcy will actually be relieved of the liability for the debt. Therefore, even if the spouses have kept their affairs separate, including all of the credit accounts, in a community property state, the practical effect is that both spouses remain liable for the marital debts of the other spouse. The only exception would be if the parties entered into a properly drafted pre-marital agreement whereby each spouse agrees to keep debts incurred during the marriage their sole responsibility, for which the other spouse will not be liable.
It is possible, however, that the filing spouse's creditors may not even be aware of the non-filing spouse, and may never attempt to collect. Additionally, in the event the filing spouse's creditors do attempt to collect against the non-filing spouse, there is some protection in that they would be prohibited from levying against any community property assets because those assets also belong to the spouse who has received bankruptcy protection. This would include wages, bank accounts, and any other community property assets. Also, once the marriage ends, either by divorce or death, the community is gone and there is no individual liability created by virtue of the community relationship as to those debts that were not the contractual liability of the non-filing spouse.
Regardless of the risk of marital creditors collecting against the non-filing spouse, both spouses often choose to file bankruptcy together because it will better enable them to start fresh, with no debts of either spouse holding them back. Filing a single bankruptcy between two spouses also saves money as there is only one attorney fee and one court filing fee. Additionally, if spouses work together as a team, the process in gathering the necessary information for the attorney to prepare the case can be much easier.
Difficulties sometimes arise, however, when spouses do not assume equal responsibility for the amount of work to be done in gathering the required information and filling out the required documents. It is very common in many families for one spouse to assume the role of the financial manager. Thus, it is no surprise that when it comes to gathering the required information for preparing the bankruptcy, this task is often assigned to the spouse most familiar with the family's finances, or who is better organized, or simply more comfortable with the process. Due to the magnitude of work involved, this can sometimes cause the more involved spouse to feel seriously overwhelmed. On the other hand, when spouses divide the workload, problems can also arise if one spouse does not feel the same sense of urgency in getting things done, or is less organized, which can undermine the work already completed by the other spouse. It is important to remember, that no matter who does the work in gathering the information, both spouses will be held legally responsible for knowing and understanding the information in the bankruptcy. Therefore, it is imperative that both spouses are involved. Here are some suggestions for balancing the workload between spouses while at the same ensuring maximum involvement in the process by both parties so that things can go smoothly for everyone.
DISCUSS YOUR MUTUAL GOALS. Set aside a quiet time during which you both can talk freely about what you hope to achieve in filing bankruptcy, your immediate needs, and some of your long term hopes after the process has concluded.
SET A TIME FRAME. If you have a deadline due to a pending foreclosure or lawsuit, your time frame has already been set for you. Regardless, even if there is no immediate deadline, both of you may have your own ideas about when you would like to have the bankruptcy filed and ultimately concluded. Discuss your needs with each other and then set a schedule for completing the various tasks requested by your attorney. For example:
Get together requested documents: tax returns, paystubs, deeds, contracts, credit card stmnts, etc.
Complete credit counseling
Get brokers' analysis on home
Get credit reports from annualcreditreport.com; complete debt worksheets
Complete the questionnaires, read and sign disclosures and other documents
WORK TOGETHER. Much of what you need to do will be gathering documents, and it's entirely possible only one spouse knows where they are kept. Now is a great time for the other spouse to become more involved in the financial affairs of the household, and knowing where things are kept and how they are organized is the first step. When it's time to do the required credit counseling, complete the counseling at the same time, if your schedules allow. This is yet another opportunity for both spouses to participate in looking carefully at their financial affairs, even if it's the first time. The mandatory credit counseling will require you both to state what you spend in various categories of living expenses. Even if one spouse does all the shopping, usually the other spouse will buy things for themselves during an average month, such as work lunches, health aids, gas, etc. By communicating with each other and contributing what you each know, you will be able to come up with a more complete financial picture both for the mandatory credit counseling and for preparing your bankruptcy.
Both spouses should take responsibility in pulling their own credit reports and review them for accuracy, together with their spouse. Work together as much as possible in filling out any debt worksheets given to you by their attorney, checking them for accuracy as much as possible. Do not assume your spouse is aware of every debt you may have, or that you are aware of every debt your spouse has. Work together as much as possible in completing any questionnaires given to you by your attorney, answering the questions together wherever possible, filling in your own separate information where required, and reviewing the information provided by the other spouse. Read and discuss the disclosures and retainer agreement provided to you by your attorney. Share your thoughts and questions with each other, and your attorney. Remember to give your attorney email addresses for both spouses, so your attorney can always copy the other spouse in the communications.
TAKE SANITY BREAKS. When you start to feel that all of this is a bit too much to handle, it's time to take a break. Take a walk to the local farmers market for some fresh strawberries. Go for a walk on the beach. The combination of exercise and fresh air will help you clear your mind for a bit and give you the boost of energy you will need to continue with the process.
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