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Bankruptcy and Divorce in California

Posted by Furman & Zavatsky | Dec 23, 2020

Getting a divorce is typically an overwhelming life event, but deciding whether to file bankruptcy makes a difficult situation worse. There are many things you need to consider before pursuing debt relief. Unfortunately, filing for a bankruptcy after a divorce is not uncommon because one income can't sustain two households.

Bankruptcy and Divorce in California
If you are considering both divorce and bankruptcy, you need to understand how the timing impacts the divorce process.

Financial problems are a primary reason that many marriages end in divorce and these issues often are starting point for bankruptcy.

It's important for spouses who are considering both divorce and bankruptcy to know how their decisions during the divorce process can impact other aspects of the divorce. For instance, the timing of the actual filing of bankruptcy can:

  • affect how assets and debts are divided, and;
  • potentially slow down the divorce process considerably.

Any California divorce will involve the division of property, which has to be determined either community or separate property.

Once you file for bankruptcy, your property is frozen until the bankruptcy process has been completed.

To give readers a better understanding of bankruptcy and divorce, our Los Angeles family law lawyers are providing a review below.

Important Information About Bankruptcy and Divorce

  • There are two types of bankruptcy – Chapter 7 and Chapter 13;
  • Chapter 7 eliminates all dischargeable debt normally within 3 to 6 months;
  • Chapter 13 reorganizes debt and sets up a payment plan;
  • Child support and spousal support can't be eliminated under bankruptcy;
  • Bankruptcy on your record can impact future opportunities;
  • Declaring bankruptcy stops the sale of any property both spouses own;
  • If your spouse files Chapter 13, they must still make mortgage payments.

Avoid Filing for Divorce and Bankruptcy at the Same Time

Avoid Filing for Divorce and Bankruptcy at the Same Time
Don't file for a California divorce and bankruptcy at the same time as it makes it difficult for a family court to divide assets.

You should not file for a divorce and bankruptcy at the same time. Typically, most spouses will file for bankruptcy before going through the divorce process.

Filing for bankruptcy first will allow both spouses to share the cost and protect them from paying joint debt in cases where they own property together.

After Chapter 7 or Chapter 13 bankruptcy has been filed, an automatic stay will stop any creditors from freezing your assets and property.

The reason for the automatic stay is to give the bankruptcy court an opportunity to sort out your debts and assets.

If you were to file for bankruptcy and a divorce at the same time, the automatic stay would make it very difficult for the California family court to evaluate and divide their assets because they are placed on hold.

In other words, filing for bankruptcy and divorce at the same time will normally prolong the process and cause even more emotional stress.

What Debts Are Not Eliminated in Bankruptcy?

It's important to note that not all debts will be eliminated after your file for bankruptcy, which is commonly known “non-dischargeable” debts.

What Debts Are Not Eliminated in California Bankruptcy?
Not all debts will be eliminated after filing for a bankruptcy, such as child support, spousal support, student loans, etc.

In other words, these debts will not be forgiven though the bankruptcy process and you are still responsible for paying them back, including:

It should be noted there are other ways some debts could be excluded from being discharged. Under Chapter 7 bankruptcy, debtors have to follow the rules in the California bankruptcy code in order for the court to grant discharge of debt.

If a debtor doesn't follow the listed rules, the court could deny the debtor's request if they attempt to hide property, destroy or hide financial records, or fail to provide tax records.

What to Consider If Filing for Bankruptcy After Divorce

If you are considering whether to file for a bankruptcy after you are divorced in California, there are several factors you should consider:

  • Debt – you should have a clear understanding who will be liable for the debt and how much you owe. This is a first crucial step to decide whether you should pursue debt relief. It would be wise to review your credit report.
  • Income – you also need to understand the complete picture of your finances, including whether you will have to pay child support or spousal support. You need to estimate your income for the next year.
  • Expenses – clearly, you will need to know your expenses post-divorce in order to understand whether your income and debt payments will be able to cover expenses. It would be wise to create a spread-sheet to list all your expenses.

After you have closely reviewed these important factors above and it's clear you can't cover monthly expenses, then you have options, including:

  • Debt consolidation and management – consolidating debt is normally the process of obtaining a loan to cover all your debts into one payment. Many use a debt management company in order to negotiate with creditors for a lower interest rate.

Bankruptcy and Division of Property in California

Bankruptcy and Division of Property in California
If there is debt under both spouse's names and one declares bankruptcy, such as a mortgage loan, then other spouse is responsible for it.

In a situation where there is any debt under both spouse's names and one declares bankruptcy, then the other spouse is responsible for that debt. This would apply to common shared debts, such as:

  • Mortgage loans,
  • Bank loans,
  • Car loans,
  • Credit card debt.

Declaring bankruptcy will not stop the sale of the home, but it will go into bankruptcy estate. It should be noted, however, your items within the household are generally safe and you can keep them.

This means that most of your household items are not worth the creditors time to sell and you will keep them.

In a situation where your spouse files for Chapter 13 bankruptcy, they will still have to keep up with the mortgage payments, assuming they were already contributing. If they fail to make the payments, then you will be responsible.

After exempted property goes through the bankruptcy process, it can then be divided by a California family law court.

Who owns what kind of property makes a big difference in divorce-related property division and bankruptcy proceedings. In other words, the nature of the property is important.

In some cases, a creditor could pursue the full value of the marital property, while in other cases, they can only take half belonging to the spouse who didn't file for bankruptcy.

Child Support – Child Custody – Spousal Support

Child support payments can't be discharged under California bankruptcy laws.
Child support and spousal support payments will NOT be discharged after filing for bankruptcy under Chapter 7 or Chapter 13.

Child support payments and spousal support (alimony) can't be discharged under Chapter 7 or Chapter 13 bankruptcy law in California. Likewise, a bankruptcy doesn't change child custody or a parent's visitation rights.

This clearly means that filing for bankruptcy won't cancel out your legal obligation to pay your court ordered child support or spousal support either during or after the divorce is final.

However, filing for bankruptcy might have an impact on how much support you pay on a temporary basis, but there are no guarantees the court will lower the payments.

In fact, if the California family law court believes you are attempting to use a bankruptcy filing in an effort to reduce your legal obligation, they can impute your income based on the amount of money you would have made.

In other words, filing for bankruptcy in California will not normally significantly affect child support or alimony long-term.

It should be noted, however, that other debts that are acquired during or after a California divorce might be discharged under Chapter 7 or 13 bankruptcy, but will depend on the specific nature of the debt.

Contact the Los Angeles Family Law Lawyers at Furman & Zavatsky for Help

Contact the Los Angeles Family Law Lawyers at Furman & Zavatsky for Help
Contact Furman & Zavatsky for help with filing for a California divorce.

Our Los Angeles divorce attorneys can help you make important decisions when you are considering filing for a divorce.

You need to know all the related information when making a decision on whether to file for a bankruptcy.

Every divorce and financial situation are unique. This means we need to first review your exact circumstances in order to develop a strategy.

We can help you through all the complex issues related to a divorce and bankruptcy.

Furman & Zavatsky are Los Angeles divorce and family law lawyers who represent clients throughout Southern California, including LA County, Ventura County, Orange County, Hollywood, Santa Monica, Pasadena, Riverside, and San Bernardino.

Our law firm is located at 15821 Ventura Blvd #690 Encino, CA 91436 in San Fernando Valley. Contact our office for a free case evaluation at (818) 528-3471.

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Call a Los Angeles Divorce Lawyer

Family law disputes have the potential to have a significant impact on your quality of life and overall happiness. As a result, it is critical for you to protect your rights to the fullest extent possible when involved in a dispute related to family law. The lawyers of Furman & Zavatsky have the skill and experience to resolve your case as favorably as possible and provide compassionate and understanding legal counsel and representation. We also offer flat fee legal services for divorce and family law issues.

To schedule a free consultation with one of our Los Angeles divorce attorneys, call our office today at 818-528-3471. Read our blog on how to prepare for your first meeting with a divorce lawyer.

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