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  1. #1
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    Jul 2014
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    Default What Happens to Equity in a Marital Home if Only One Spouse Files Bankruptcy

    My wife is considering filing for Chapter 7 bankruptcy. Ideally, it will be just her and not me (since her debt is the root of our issues). I have some concerns about protecting our assets. We are California residents and we have a house together that I 100% paid for. She was not involved in the purchase other than getting her name on the title (since we were married). All of the funds used, were funds that I saved before we got married. Is the home an asset that can be sold since her name is on the title?

    If so, I’m aware of the Homestead act. According to independent research, California single homeowners can be exempt from 75,000 of the equity and married couples are exempt from $150,000. In doing comps, it looks like we have about $80,000 in equity. Does the $150,000 apply to her filing since she is married, or will we have to file chapter 7 together in order for the $150,000 amount to apply?

    To further complicate things, she owns another home that she purchased before we married. I am in no way tied to that house. She rents the house out to a family member for 0 profit. From what I've read, she will only be able to protect her primary residence (the one we own together) and the second home will be fair game for lien. Is this correct?

  2. #2
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    Sep 2011
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    Default Re: What Happens to Equity in a Marital Home if Only One Spouse Files Bankruptcy

    It does not sound like a judge will permit her to file Ch 7. She can pay her bills but elects not to do so.

  3. #3
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    Jul 2014
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    Default Re: What Happens to Equity in a Marital Home if Only One Spouse Files Bankruptcy

    Quote Quoting Disagreeable
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    It does not sound like a judge will permit her to file Ch 7. She can pay her bills but elects not to do so.
    I'm not sure how you made that assumption based on the information I provided. Our current cash flow cannot support her debt. She no longer makes enough money to support her debt. At this time I only have enough income to support my debt.

    Assuming she qualifies, lets get back to the question at hand.

  4. #4
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    Default Re: What Happens to Equity in a Marital Home if Only One Spouse Files Bankruptcy

    She can sell her second house. She will have all kinds of cash.

  5. #5
    Join Date
    Jul 2014
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    Default Re: What Happens to Equity in a Marital Home if Only One Spouse Files Bankruptcy

    What about protecting our home? Does the California Homestead $150,000 apply to her filing since she is married, or will we have to file chapter 7 together in order for the $150,000 amount to apply (meaning only $75,000)?

  6. #6
    Join Date
    Oct 2006
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    15,675

    Default Re: What Happens to Equity in a Marital Home if Only One Spouse Files Bankruptcy

    Quote Quoting JM419
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    What about protecting our home? Does the California Homestead $150,000 apply to her filing since she is married, or will we have to file chapter 7 together in order for the $150,000 amount to apply (meaning only $75,000)?
    You really need to be consulting a local bankruptcy attorney. However, I can just about guarantee that she will have to sell the home that the family member is living in, if she files for bankruptcy.

  7. #7

    Default Re: What Happens to Equity in a Marital Home if Only One Spouse Files Bankruptcy

    Quote Quoting JM419
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    Our current cash flow cannot support her debt. She no longer makes enough money to support her debt. At this time I only have enough income to support my debt.

    Assuming she qualifies, lets get back to the question at hand.
    Making enough money to pay the debts is not a consideration to qualify for chapter 7.

    For example I did not qualify for chapter 7 even though I could not afford my debts. It was not until an extended period of time unemployed passed that I could file without the presumption of abuse.

  8. #8
    Join Date
    Aug 2014
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    9

    Default Re: What Happens to Equity in a Marital Home if Only One Spouse Files Bankruptcy

    Don’t put the cart before the horse. The first question to answer is: how is your home held?

    California is a community property state. Property acquired by a married couple during the marriage is community property belonging equally to both spouses. Even if only your wife files bankruptcy, all community property becomes property of your wife’s estate. The legal defense of “this is mine and that’s hers” doesn't play well in California.

    Community property is the default rule, but it is not always the case. Your home may be held as a joint tenancy (check your deed). A joint tenancy means that only one-half of the value of your home would be part of your wife’s bankruptcy estate. How you proceed with exemptions depends on how the home is owned.

    To answer your question directly, she is able to use one-half of her homestead exemption to protect equity of the tenancy is community property, and all of her exemption to protect the equity of the home is held as joint tenants.

    You state that your wife owes separate debt, but in a community property state the general rule is that debts incurred by either spouse during the marriage are owed by the "community" (the couple). In plain English, “her” debts may have put “your” property at risk.

    [Rant on] Now that you have a little information, get off the internet and schedule an appointment with an experienced California bankruptcy attorney who can advise you as to the specifics of your case. It sounds a lot more complex than you may think. [Rant off]

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