MARRIED people are allowed by the bankruptcy code to file joint petitions. A husband and wife can file one joint chapter 7 case and pay only one filing fee, not two. However, all assets and liabilities whether community, joint, or separate must be listed in the petition. On the other hand, a husband or wife may file a single bankruptcy petition by his or herself without including spouse. In this case, only joint and community assets need to be listed in the petition. Separate property of the non-filing spouse does not have to be listed, and of course, debts of the non-filing spouse are not listed in the bankruptcy petition. In other words, a married person may file a joint bankruptcy petition together with his or her spouse, or a single petition by himself or herself. How do these situations happen?
Client migrated ahead of spouse while spouse remained abroad to take care of their family. Client incurred $50,000 of credit card debt by himself while living in the California. Spouse and children migrated to California recently and has no debt. Client decides to seek bankruptcy relief to discharge his $50,000 of credit card debt. Spouse owes nothing so does not need a bankruptcy. Client needs a bankruptcy to get a fresh start for him so he can take care of his family who has migrated here. Instead of paying $1,500 to keep his credit cards current every month, client would rather use the money for the necessities of his family.
In another case, client owes $40,000 of credit card debt. Spouse only owes $3,000 of unsecured debt. There is no point for spouse to obtain bankruptcy relief because spouse only owes $3,000. A single filing by client will suffice. All community property and joint assets must be listed in the petition even if one spouse does not file. 100% of community and joint assets are deemed part of the bankruptcy estate, unless covered by exemption. Separate property of the non-filing spouse is not part of the bankruptcy estate and to be excluded. For instance, client and non-filing spouse jointly own a house with $50,000 of equity. The entire $50,000 must be exempted under applicable law, not $25,000. If non-filing spouse inherited $2.0 million from her parents last week, that money, the entire amount, is not part of the bankruptcy estate. The bankruptcy court has no jurisdiction over the money because that money belongs to the non-filing spouse as his or her own separate property. California law on marriage defines the character of property as community, joint or separate. So, if married debtor has chosen to file a single petition, an inventory of community, joint and separate property of the spouses must be conducted. In many cases, the non-filing spouse may have a bank account that belongs to her parents but placed in her name. For instance, the $2.0 million in this example may belong to the parents of non-filing spouse but placed in her name for convenience. This money is not part of the bankruptcy estate because it belongs to the parents of the non-filing spouse. Debtors should be prepared to present documentary evidence proving that an asset is separate and does not belong to debtor but belongs to the non-filing spouse as separate property or his parents in law. The documentary evidence may consist of money transfers from the parents in law to the non-filing spouse or the sale of their assets and subsequent transfer of funds to spouse. If there are no documentary evidence available, oral testimony of debtor and non-filing spouse under penalty of perjury may suffice, but not in all cases. If there is no evidence to the contrary, California law presumes that the asset is community property subject to rebuttal. If there is no rebuttal evidence available, the asset may classified as community property, and if there is no exemption applicable, the asset will be taken by the trustee, and your parents in law will ask your wife to leave you.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published November 14, 2009 in Asian Journal Los Angeles p. C4 )
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