Should I File for Bankruptcy with My Spouse?
Bankruptcy law allows debtors to file a personal chapter 7 or 13 bankruptcy case either by themselves, individually, or jointly with their spouse. Typically, when both spouses have a substantial amount of debt, it makes good sense for them to file a joint case together. That way, both spouses can wipe out all of their debt, at the same time, without having to go through the additional time and cost of filing two separate cases (debtors don’t have to pay twice for attorney fees and court filing fees).
Sometimes, it is better not to file with one’s spouse, however. For example, if one spouse has a large amount of nonexempt property (property that is not protected from creditors), it may make sense for the other spouse to file by themselves to avoid having property taken by the chapter 7 trustee to pay creditors, or having to pay more in a chapter 13 to creditors (chapter 13 debtors must pay their creditors at least as much as they would have received in a chapter 7 case). Although filing for bankruptcy usually vastly improves one’s overall financial circumstances in the long-run, it often has a temporary negative affect on one’s credit score and upon their ability to secure financing in the short term. For this reason, it may also be wise in some circumstances for only one spouse to file bankruptcy. The non-filing spouse will not experience this short-term negative impact and this may benefit the filing spouse by having the other spouse available as a co-signer to better enable the spouses to secure future financing together.
It may also make sense for only one spouse to file for bankruptcy if the spouses are going through a divorce. For example, in a chapter 13 case, it may be very difficult for spouses going through a divorce to work cooperatively to successfully complete their 3 to 5 payment plan. A chapter 7 case may be more feasible for the divorcing spouses to successfully complete due to the fact that it typically only last 3 to 4 months and usually does not involve much effort to complete. Spouses who live together are considered to have “joint income” for bankruptcy purposes. This means that even if only one spouse files for bankruptcy, the other spouse’s income must be taken into consideration to determine whether the filing spouse qualifies for a chapter 7 or must file a chapter 13. Once the spouses live in separate houses, their income is no longer considered “joint,” and a spouse filing an individual bankruptcy case, by themselves, need not include the other spouse’s income. If the separated spouses are still legally married, either spouse may a bankruptcy case on their own, or jointly with their spouse. It may make sense for the spouses to file together if they have a lot of marital debt. That way, the bankruptcy can eliminate all of the joint debt, thereby simplifying the future divorce, as there is no marital debt to be divided up. However, it may also make sense for one, or both, of the spouses to files separate chapter 7 bankruptcy cases, if they are living apart, and their combined income would otherwise force them to file a joint chapter 13 case.
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Deciding to file a bankruptcy case jointly with one’s spouse, or by oneself, can be difficult and depends upon one’s particular circumstances. Before deciding whether to file a bankruptcy case with your spouse, you should contact an experienced bankruptcy attorney to navigate you through the process. See us at Lifebacklaw.com!
