A bankruptcy filing is a provision under federal law that provides a way to help provide debt relief to those who need it the most. The process can be much difficult and complicated in instances where a spouse is involved.
Prior to embarking on the long treacherous process, married couples should have a basic understanding of possible outcomes.
Can I file for bankruptcy without my spouse?
Under federal laws, it is possible for an individual bankruptcy filing, even if one is married. In this case, the court will try to ascertain whether there are joint properties or shared debts.
In case of joint debts, then a bankruptcy filing by one partner is likely to find its way into the other partner’s credit report. The fact that creditors are notified once the process starts, means they can still come after a spouse to collect any debts even with a bankruptcy filing.
The likelihood of a bankruptcy filing affecting a spouse is also dependent on property laws depending on the State. Depending on whether one partner files for Chapter 7 of Chapter 13, then a spouse may have to contend with some consequences.
In case of properties, Bankruptcy will not in any way affect any separate property owned by a spouse. However, in the case of jointly owned assets, the impact of bankruptcy will mostly depend on whether the property is protected under community property State law or common law.
Property owned by a spouse is usually not at risk, in cases of a bankruptcy filing by one partner, under Common Law. However, under Community Law provision, a property acquired during the marriage can be used to satisfy debts in case of a bankruptcy filing by one spouse.
Filing For Bankruptcy Individually
As discussed above, it is very much possible to file for bankruptcy individually, even if one is married. It is also possible to file for bankruptcy as a couple, an option that is ideal in case of joint properties and debts. Single persons can also file for bankruptcy.
The mode of filling depends on where a married person lives and what property they own, either individually or jointly with a spouse. It is advisable to file for bankruptcy individually as a way of protecting the other spouse’s credit.
An individual filling is also ideal in cases where each partner in the marriage owns separate properties or assets.
Does my spousal income count towards the bankruptcy?
While filling for individual bankruptcy, it is important to note that a spouse income counts a great deal even if he or she is not part of the petition. Income generated by a spouse dictates the type of bankruptcy one gets to file.
One can only qualify for an individual bankruptcy filing if their spouse income is below a certain amount under Chapter 7. For chapter 13 filing, a spouse income must be above a certain income level. It is common for a bankruptcy attorney to ask for income generated by each spouse as both incomes are used to evaluate eligibility to individual filling.
Is my spouse responsible for debts only in my name?
In the case of joint debts, an individual bankruptcy filing does not protect the other partner. Individual bankruptcy filing only affects personal liability. In this case, creditors would still be able to pursue the other spouse to recoup any money owed.
However, creditors cannot pursue collections on debts, from a spouse, in instances where the debt is in the name of the person filing for bankruptcy.
If you live in a community property State such as Arizona or Texas, creditors can still go after your spouse separate property to settle part of the debts after bankruptcy. The law, in this case, assumes that all property acquired during marriage is community property.
Filling With Your Spouse
Filling for bankruptcy as couples is very much possible. In this case, both spouses file a joint petition, and a bankruptcy file is opened in the names of both parties. Married couples can file a joint petition as a way of keeping costs down. Bankruptcy attorney fees will be much lower for a joint filling as opposed to each partner filling separately.
A joint filling also tends to be more efficient as it allows married couples to complete just one petition. Both spouses also get to attend hearings together and get the opportunity to discharge all their debts on a single filling.
One of the major drawbacks of joint filings has to do with the fact that some State laws limit the amount of property that such couples get to protect. Joint filings are also not ideal in instances where one spouse owns a lot of non-exempt property.
Filling for bankruptcy as married couples will always come down to the amount of property jointly owned. It also depends on the exemptions that the couples stand to enjoy.