Bankruptcy in California

State law gives some twists to bankruptcy issues for Californians even though bankruptcy is controlled by federal law.

California gives debtors a choice between the state law exemptions found in Code of Civil Procedure §704 and a set of bankruptcy-only exemptions in CCP §703.140 that mirror the bankruptcy code exemptions in the federal law when the California law was adopted.

Usually, homeowners chose the state law exemptions with a generous homestead exemption for equity in a primary residence.

Renters or those with no equity in their homes chose the CCP 703 exemptions, with its "wild-card" or "grub stake" exemption for equity in any kind of property.

Community Property

California is a community property state where property acquired by a married couple during marriage is community property belonging equally to both spouses, unless they agree otherwise. The community property (though not necessarily the other spouse personally) is liable for the debts incurred by either spouse during the marriage.

Even if only one spouse files bankruptcy, all of the community property becomes property of the estate. Property of the estate, if not claimed exempt, is available to pay the community debts of both spouses through the bankruptcy. Can I file bankruptcy by myself?

Community Property Discharge

The trade off for debtors in community property states for the inclusion of both halves of the community property in the bankruptcy estate is that all community property of the marriage acquired after the bankruptcy is protected by the discharge, even if only one spouse filed.

That means that the after- acquired community property is not liable for the debts of the non filing spouse that existed when the bankruptcy was filed. 11 U.S.C. 524(a)(3). The non filing spouse's separate property (if any) may be liable, however.

This provides lots of opportunities for planning in cases where there are reasons why both spouses can't file or where debt and/or property holdings are lop sided.

Get good legal advice to explore how these principles play out. If you live outside of the San Francisco Bay Area where the Moran Law Group practices, the California State Bar certifies bankruptcy specialists who can be located by county on the bar's site.

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Bankruptcy in Brief