When One Spouse Declares Bankruptcy

If you or your spouse or ex-spouse declares bankruptcy independently, the non-filing party need to know how this filing will impact any of his personal assets, property or income. This will depend on several factors, including whether debts or property were acquired jointly and whether you live in a community property state.

Why One Spouse Would File Bankruptcy Individually

There are many good reasons for filing for bankruptcy individually rather than jointly. One common reason is that one of the spouses does not wish to be involved in a bankruptcy. There are a some situations when a an individual bankruptcy is the best option. These situations may include, but are not limited to:

• One spouse is barred from filing for bankruptcy due of a prior recent bankruptcy dissolution.
• You and your spouse own property together that exceeds federal exemption allowable under bankruptcy law and the property is protected from creditors via other methods.
• Your spouse is not allowed to file for Chapter 7 bankruptcy due to an objection to discharge of a debt because of concealment of assets or other fraudulent acts.
• If you are seeking a Chapter 13 bankruptcy, your spouse has a priority debt that exceeds the Chapter 13 debt limits, or one spouse has other debt issues that make a joint bankruptcy filing undesirable.
• In certain community property jurisdictions, it may not be necessary for both spouses to file together because most community debts and community property will be handled through an individual filing. If you live in a community property state, make sure you know how the law will impact your filing for individual or joint bankruptcy before you commit.

What Happens When an Ex-Spouse Files for Bankruptcy

If you were a co-signor with your ex-spouse on a debt acquired during marriage, the creditor may require the entire payment of that debt from you at the time your ex files for bankruptcy whether or not your divorce papers assigns the debt to your ex. Your divorce papers may detail any recourse you may have against your ex in the event she defaults on a debt.

When Might Both Spouses File Jointly?

If debt is in both spouses’ names, it may be in their best interest to file bankruptcy together or at least both file separate cases.  The reason for this is that one spouse filing bankruptcy does not absolve the other spouse of the obligation to pay the debt.  While there may be temporary protection for a co-debtor in a Chapter 13 bankruptcy, when all is said and done, the non-filing spouse will still be held accountable.

Separate Debt

However, if spouses keep all their debt separate, it may not be necessary for both spouses to declare bankruptcy.  This is often the case when people have not been married very long or have pre-existing debt from prior to the marriage. Some spouses may also make a conscious effort to keep their finances separate.  If the debt of only one spouse’s is negatively affected, it may only be necessary for that spouse to file bankruptcy.

Secured Debt

If spouses have joint secured debt that is dealt with in a Chapter 13 payment plan, it may not be necessary for both spouses to file.  This may not be the case if the total debt is not paid in the plan.  If this is the case, the spouse not filing may be held responsible for any remaining debt not paid in the bankruptcy.  However, if the total debt is paid in the Chapter 13 payment plan, the co-debtor protection will stop any collection activity and allow the debtor to handle the debt in the bankruptcy.