Many things are shared in a marriage: a house, a family, a car, household chores, and furniture, among them. But both partners in a marriage need not file for bankruptcy if just one of them gets into financial trouble. The nonfiling spouse is not liable for a filing spouse's debt, as long as the debt is in the filing spouse's name only. However, when one spouse files for bankruptcy, the other spouse will still need to provide information about his or her salary and other asset information. This information will determine, in part, whether the filing spouse qualifies for Chapter 7 or Chapter 13 bankruptcy.
Will My Spouse's Bankruptcy Cause Me To Go Into Bankruptcy, Too?
No. As stated above, within a married couple, each individual is solely responsible for the debt incurred in his or her name. However, properties or other assets owned jointly may be vulnerable to creditors during the bankruptcy process. The nonfiling spouse could technically lose some of these jointly owned assets if creditors seize them to pay debts. However, the nonfiling spouse would not necessarily have to declare bankruptcy himself or herself. If, however, the assets seized represent an important income-generating business (for example, antique furniture that would normally be for sale as part of a family owned consignment store), the nonfiling spouse may have a more complicated situation to navigate.
Don't We Have To Be Really Poor To File For Bankruptcy?
A person qualifies for bankruptcy not just on what they make or are worth, but based on his or her income vs. expenses. That is, a person can make a decent salary but still qualify for bankruptcy if his or her debts and expenses are very high.
Is Chapter 7 Or Chapter 13 Better For A Single Bankruptcy Filing?
A Chapter 7 filing allows a person to discharge a greater amount of debt right away, whereas Chapter 13 requires the filer to create a repayment plan on some amount of the original debt. Knowing this, most would rather file for Chapter 7. However, it is not as easy as deciding which type of filing would suit you better. The court ultimately decides which type of bankruptcy a person qualifies to file for.
- Even though only one person may be filing for bankruptcy, the court will consider household income from both spouses to determine if the filing spouse is eligible to file for Chapter 7. In cases where a filing spouse has little disposable income but a nonfiling spouse earns substantially more, the income of both will be reported on bankruptcy forms. If the household income is more than the qualifying median income required for filing Chapter 7, the filing spouse may have to file under Chapter 13. The court will also take into consideration any expenses paid by the nonfiling spouse that are not related to monthly household costs when determining the filing spouse's current monthly income (CMI). For example, if your spouse pays $500 on a car loan, $500 will be deducted from your total costs in order to determine your monthly disposable income.
- If the household income of a filing spouse disqualifies him or her for Chapter 7, he or she can still file under Chapter 13. Under Chapter 13, a trustee is appointed by the court in order to administer the repayment of debt according to a plan agreed to by the filing spouse's creditors. While the nonfiling spouse will not be involved in the Chapter 13 repayment plan, his or her income will be considered when determining the repayment schedule.
Are There Any Better Alternatives To Bankruptcy?
While couples are often tempted to borrow money, take out a second mortgage, or consolidate credit cards, doing so may actually be more expensive and counterproductive in the long run. We understand the financial issues facing couples when only one spouse needs to file for bankruptcy. We can advise you on how to help protect your credit and the steps you need to take to begin rebuilding your credit score.
Will My Spouse's Bankruptcy Affect My Credit?
In theory, any debt carried by one spouse only will not appear on the other spouse's credit report. Additionally, bankruptcy on the part of one spouse should not appear on the credit report of a nonfiling spouse unless they have joint debt together.
Would A Joint Bankruptcy Filing Be Better?
There isn't a standard answer to this question. In each case, a couple needs to evaluate how much debt and assets each has individually, as well as how much they share as a couple. For couples with a great deal of joint debt who may likely have to file individually anyway, joint filing may save court and attorney fees. But if one spouse has significant assets and good credit, joint bankruptcy would not make as much sense, as it could make those assets vulnerable to creditors and negatively affect the person's credit score.
Contact Us With Additional Questions
If you need additional information regarding bankruptcy and single filing by one spouse only, contact the bankruptcy lawyers at Kingcade & Garcia today to schedule an appointment to discuss your case. We can order a credit report, evaluate your financial situation, and determine the best course of action available to you.