Spousal waivers in California bankruptcy cases are not an issue when both spouses file bankruptcy together. However, bad things can happen when one spouse files bankruptcy on their own without first having the non-filing spouse sign the waiver.
As I covered back in January, California law requires that the non-filing spouse sign a spousal waiver if the filing spouse elects to use California’s 703 bankruptcy exemptions. The waiver is there to prevent two spouses from filing separate bankruptcy cases and electing two use California’s 703 and 704 exemptions at the same time.
Occasionally, a person will want to file bankruptcy when they are separated, but not yet divorced. A debtor in this situation must be careful. There can be grave consequences in a Chapter 7 Bankruptcy if the debtor can not obtain their spouse’s signature on the spousal waiver.
A majority of my bankruptcy clients elect to use California’s 703 exemptions because of the “wildcard exemption.” The wildcard exemption can be used to protect any asset in a bankruptcy, including cash in bank accounts and impending tax refunds.
The problem that can arise with spousal waivers is this: a debtor files a Chapter 7 bankruptcy using California’s 703 exemptions. The debtor files the case without first obtaining the signed spousal waiver. After filing the case, the debtor is unable to get the non-filing spouse to sign the spousal waiver.
The non-filing spouse may object to the waiver for any number of reasons, including that they just don’t want to get along with their spouse.
Without a valid spousal waiver signed and submitted to the Court, the Bankruptcy Trustee can object to the debtor’s use of the California 703 exemptions. This would force the debtor to switch to California’s 704 exemptions. As an example, if the debtor was attempting to exempt a $5,000 tax refund, being forced to use the California 704 exemptions would result in the debtor losing the tax refund.
Before filing a Chapter 7 Bankruptcy with only one spouse, it is critical to obtain the non-filing spouse’s signature on the spousal waiver. This can prevent the loss of assets to the Bankruptcy Trustee. As a bankruptcy attorney, I will not rely on a promise from one spouse that they will sign. I will not file the case without first obtaining the signature.
If you have any questions about Spousal Waivers in Chapter 7 Bankruptcy cases in Sacramento, please contact my office. I can be reached at (916) 333-2222.