Separating Bankruptcy Fact From Fiction: Debunking Five Los Angeles County Chapter 7 Myths

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Bankruptcy is a delicate topic to discuss. Even in Los Angeles country, it may carry a stigma that helps perpetuate myths and misconceptions about the process. This article aims to tackle five of the most common myths about Chapter 7 bankruptcy, including: 

• Why your spouse will not necessarily have to file for Chapter 7 bankruptcy if you do. 
• Why unpaid medical bills must be included in your bankruptcy. 
• The real impact of bankruptcy on your credit score and ability to get a loan.

Myth #1: If I File For Chapter 7 Bankruptcy, My Spouse Has To File Too.

Answer: No, your spouse doesn’t have to file with you. While you have the option to file jointly, there’s no requirement to do so.

To understand why, it helps to look at California’s property division rules outside of bankruptcy. California law divides married couples’ assets into three categories: each spouse’s separate property and the community property.

How Is Marital Property Handled And Divided In California Law?

Anything acquired before the marriage or inherited during the marriage is considered separate property. In contrast, community property includes wages earned and assets acquired during the marriage. So, while there’s no community property on the day you marry, anything acquired together over time typically becomes community property — unless it is inherited.

This distinction matters in two situations outside of the bankruptcy context:

1. Divorce

In a divorce, each spouse keeps their separate property, and community property is split as close to 50/50 as possible.

2. Debt Collection

If you have debt, creditors can go after your separate property but can’t touch your spouse’s separate property unless your spouse is a codebtor. However, they can target all community property. The idea behind this is that it is an undue burden on a creditor to have to determine which half belongs to which spouse.

What Happens To Community Property During Bankruptcy?

When you file for bankruptcy, creditors cannot target community property, which is protected by the automatic stay. However, if your spouse does not file with you, creditors can collect from your spouse’s separate property if your spouse is a codebtor. This is why filing jointly can simplify things: all assets and debts are disclosed together. If you file alone, you must list your assets and liabilities, all the community property, and your spouse’s liabilities — because your community property is liable for your spouse’s debts — but you may exclude your spouse’s separate property.

Why File For Bankruptcy Alone Instead Of Jointly?

There are three main reasons you might file alone:

• A Recent Marriage 

If you’ve just married and one of you has significant debt, filing individually often makes more sense. Although California law may imply shared liability, no legal documents currently tie your new spouse to your creditors.

• Your Spouse Recently Filed For Bankruptcy

If your spouse recently received a Chapter 7 discharge, they must wait eight years before filing a Chapter 7 again. In this case, you are the only one who can file.

• Your Spouse Doesn’t Want To File

Sometimes, a spouse may want to avoid filing to protect their separate property assets or avoid other consequences. In this case, filing individually may be appropriate.

How Is My Spouse Protected In Different Bankruptcy Chapters?

If you file Chapter 13, the Chapter 13 codebtor stay prevents creditors from pursuing both you and your spouse. However, there is no codebtor stay in any other chapter, so in a Chapter 7 creditors may still pursue your nonfiling spouse.

However, once your discharge is granted, the permanent injunction (under Section 524(a)(3)) takes over, preventing creditors from pursuing you or your community property for discharged debts. So, while creditors can pursue your spouse’s separate property, there may be little or none of that left after a long marriage.

In most cases, creditors respect this discharge protection, but some may not understand the injunction’s full scope. If they contact you postdischarge, you may need to provide them with a written explanation of the injunction, and an attorney can assist if creditors persist.

Myth #2: I Can’t Discharge Unpaid Medical Bill Debt In Chapter 7 Bankruptcy.

Answer: Yes, unpaid medical bills can be discharged — and must be included in your Chapter 7 bankruptcy.

Bankruptcy is designed to be fair and transparent. You aren’t allowed to pick and choose which debts to include—even if they involve family members. Honesty is also essential in this process. When you file a Chapter 7 petition, you are required to declare all your debts and creditors, swearing under penalty of perjury that everything has been disclosed. Failing to list a debt, including medical debt, is perjury—a serious offense.

Why Is It A Good Idea To Include Medical Debts In My Chapter 7 Bankruptcy?

Including medical debt is not only required by law, it is beneficial, as courts are often sympathetic to discharging these types of debts. Medical expenses often arise unexpectedly, with little to no choice on the patient’s part. Imagine being told you need urgent surgery costing $50,000, with your health—and possibly your life—at stake. In cases like these, the hospital or doctor has all the bargaining power, which is why courts are favorably disposed to discharging medical debts.

While elective procedures, like cosmetic surgery, may not receive as much sympathy, most medical debt from essential, emergency care is likely to be discharged in bankruptcy. Regardless, you are legally required to list all debts, including unpaid medical bills, in your Chapter 7 filing.

Myth #3: If I File For Chapter 7 Bankruptcy, I Will Never Be Able to Get A Loan Again.

Answer: You can get loans after bankruptcy—sometimes even more easily than before bankruptcy.

It may surprise you, but shortly after your bankruptcy discharge, you may start receiving offers for credit cards or car loans. Here’s why lenders are still interested in you:

First, bankruptcy clears out much of your existing debt, freeing up your future income to cover new credit obligations. Lenders know that without competing debts, your ability to repay new loans is stronger.

Second, under Section 727(a)(8) of the Bankruptcy Code, once you receive a Chapter 7 discharge, you can’t file for Chapter 7 again for eight years. Lenders are well aware of this rule, meaning any new debt you take on will likely be paid—because Chapter 7 bankruptcy won’t be an option for you in the near future.

While you may initially face higher interest rates or lower credit limits, these are temporary hurdles. A skilled bankruptcy attorney can help you strategize to improve terms more quickly. Over time, as you rebuild your credit, you’ll find more favorable loan options than if you had continued to struggle with overwhelming debt.

Myth #4: After Filing Chapter 7 Bankruptcy, It Will Take Me 10 Years To Rebuild My Credit Score.

Answer: While a Chapter 7 bankruptcy remains on your credit report for ten years, you can rebuild your credit score much sooner.

The 10-year timeline comes from the fact that bankruptcy stays on your credit report for that period. But your credit score relies on many factors beyond that single item, with a strong emphasis on your current and ongoing debt payments.

In fact, as soon as your debts are discharged, you can start rebuilding. You’ll likely receive offers for credit cards and even car loans shortly after. By using one or two credit cards wisely — maintaining low balances and making the payments early each month — you can establish a positive credit history again. If possible, avoid taking on larger loans like car loans for about a year, giving you time to work on your score and set aside down payment funds in anticipation of that future car loan.

Building a down payment on future purchases, like a car or even a home after several years, can also improve your loan options and show lenders you’re financially committed. With regular, timely payments and a solid down payment, you’ll see steady improvement in your score long before the 10-year mark.

Myth #5: Creditors Will Still Bother Me Even If I File For Chapter 7 Bankruptcy.

Answer: The automatic stay in bankruptcy law protects you from creditor harassment.

Once you file a petition under Chapter 7 (or any other bankruptcy chapter), an automatic stay is triggered, stopping all creditor actions against you, your assets, and the bankruptcy estate created by your filing. This stay legally prevents creditors from:

• Calling you,
• Sending bills,
• Writing letters,
• Filing lawsuits,
• Garnishing wages,
• Seizing funds from bank accounts,
• Foreclosing on property,
• Repossessing property.

In effect, the automatic stay acts as a legal barrier, shielding you from any creditor attempts to collect debts during your bankruptcy.

What Happens If A Creditor Violates The Automatic Stay?

If a creditor knowingly violates the stay, you have the right to sue them in the Bankruptcy Court. If successful, they must cover your court costs and attorney’s fees — an unusual provision in U.S. law that highlights the seriousness of the automatic stay.

If a creditor’s action is an honest mistake, we’ll first notify them and ask them to stop. Usually, this resolves the issue. However, if they continue, we’ll take action and may sue in bankruptcy court to enforce the stay.

After you receive your discharge, the automatic stay is replaced by the permanent discharge injunction, preventing creditors from ever trying to collect on discharged debts. If a creditor does attempt collection, you can return to the Bankruptcy Court to enforce the discharge.

Keep in mind, though, that the discharge only applies to eligible debts. Certain debts, like child support obligations and specific tax liabilities, are not discharged and can still be collected.

What Other Common Misconceptions Come Up About Bankruptcy?

The myths surrounding bankruptcy can prevent many Californians from seeking the debt relief they need. Here are two additional misconceptions that often lead to misunderstandings or even serious consequences.

Can I Transfer Assets To Save Them From Bankruptcy?

Some people think they can transfer assets to others before filing for bankruptcy to keep them out of creditors’ reach. However, trying to hide or shield assets in this way is one of the worst actions you can take. Such transfers are known as “fraudulent transfers.” If you transfer assets within one year before filing, you are ineligible for a Chapter 7 discharge.

In addition, if you transferred assets within four years — and in some cases within ten years — of filing the petition, the Chapter 7 trustee assigned to your case has the power to undo these transfers and retrieve assets from the recipients. This can create serious issues with family or friends who may have to return these assets. Ultimately, transferring assets before bankruptcy is a very bad idea and can lead to more problems than it solves.

Will I Get Fired From My Job If My Employer Finds Out I Filed For Bankruptcy?

Unless your employer is a creditor in your bankruptcy case, they are unlikely to find out about your filing. But even if they do, Section 525 of the Bankruptcy Code prohibits employers — both public and private — from discriminating against you based on a bankruptcy filing. This law protects you from being fired solely because of a bankruptcy.

While it’s uncommon, there’s no absolute guarantee that an employer won’t act illegally. In the rare instance this happens, you would have grounds to pursue legal action for wrongful termination.

Still Have Questions About Bankruptcy In California?

For more help Separating Fact From Fiction In Bankruptcy or to get started on your own, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.