Let me tell you a secret about bankruptcy law.
You can get 3/4 of the benefits of a bankruptcy discharge without ever going near a bankruptcy court if you are a married person in California, or any other community property state.
If your spouse files bankruptcy and you don’t join in, you still reap much of the protection from your creditors that you would get if you had filed.
How can that be?
It’s the law, a little known feature of the bankruptcy code that applies to a bankruptcy discharge in a community property state. §523(a)(5)
Here’s how and why it works this way.
When only one spouse files
Spouses aren’t required to file bankruptcy together. They can file together, but they don’t have to.
In return, the community property gets a bankruptcy discharge, just as though it was a separate person. (Which is why I sometimes say that, in a community property state, each marriage is a menage a trois.)
The discharge protects not only the property that the couple owned when one spouse filed bankruptcy, it protects community property that they acquire in the future. [Read more…]