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Posted by: Rob Cohen
One of the most common questions bankruptcy attorneys receive is: “How will filing for bankruptcy affect my spouse?”
The issue comes up most frequently when only one spouse is planning to file for bankruptcy.
Many have the mistaken impression that because they are married, their spouse is automatically responsible for their debts. This is not the case. Both spouses are on the hook only if the debt was incurred in the name of both partners.
For example, a credit card account started by your husband while he was a bachelor does not become your legal responsibility just because you’ve tied the knot. On the other hand, a joint credit card account or mortgage you’ve both signed for is a joint debt, meaning both you and your spouse are on the hook and the bankruptcy of just one of you will leave the other holding the bag — or the debt, as it were.
How does bankruptcy affect my spouse?
If a husband files bankruptcy without his wife, only the husband’s debts are discharged. If the debts are held jointly, the non-filing wife will still owe even after one spouse has filed bankruptcy.
The bankruptcy filing will appear on the husband’s credit report, but should not appear on the wife’s. If a non-filing spouse receives an adverse rating on their credit score as a result of their spouse’s bankruptcy, the matter should be addressed immediately with the credit reporting agencies. A non-filing spouse should not have their credit damaged as a result of their husband or wife filing for bankruptcy.
If filing bankruptcy, consider spouse’s assets
Beyond just debt, another issue for married couples to consider when evaluating bankruptcy is how assets are held. If one spouse owns property in her name only and doesn’t file bankruptcy, it won’t become part of the bankruptcy estate.
This could be an important factor depending on the value of the asset, because Chapter 7 is technically a liquidation. All the property you own that exceeds the value of your state’s exemption laws is subject to sale by the bankruptcy trustee. However, the trustee only has jurisdiction over the property of the party that files. For example, a wife’s home that is only in her name does not become part of her husband’s bankruptcy estate.
However this only a general rule. Many states recognize a concept known as “equitable title”. If your state is one of them, sometimes a house or other property not in your name can be administered by your bankruptcy trustee. This is complicated stuff and you need to discuss this concept with qualified legal counsel.
Married couples can file bankruptcy jointly
One point of clarification/explanation: When we speak of married couples “both filing for bankruptcy,” we’re talking about a joint petition in which one case is filed under the names of both parties. This keeps down the cost of bankruptcy by allowing married debtors to file a single case with a single fee.
Whether you file jointly or separately, one of the biggest immediate benefits you’ll notice of bankruptcy is the automatic stay. That means creditors stop calling, foreclosure is no longer imminent, and any wage garnishment must end. Surely, this will lift a lot of stress off your family. Even if your bankruptcy isn’t affecting your spouse financially, it’s probably resulted in emotional turmoil and a lot of difficult conversations around the dinner table.
See also: Will I Owe Money After Foreclosure?
The lesson to be learned from this post is simple: your debts are your debts only, and only you are responsible for them. This rule has big implications if you’re preparing for bankruptcy because if you file without your spouse, your joint debt will become your spouse’s full responsibility.
In order to make the correct decision, make a list of the debts that are really holding you back. Are they primarily incurred in one spouse’s name? If so, it may be best for the heavily indebted spouse to file bankruptcy to preserve the other’s credit score.
If, on the other hand, joint debts are your main problem, it will be necessary for both spouses to file in order to truly rid yourselves of debt.
Get help with your bankruptcy
National Bankruptcy Forum has a wealth of resources at your fingertips to get you started on your journey through bankruptcy. While it may seem difficult now, perhaps unbearable, bankruptcy can be a good thing. Choosing the right bankruptcy attorney to navigate you through the complexities of your case is important.
Whether you file for Chapter 7 or Chapter 13, you’re well on your way toward getting out of debt and putting your best food forward.
Rob Cohen, the Managing Partner of Cohen & Cohen P.C., is a bankruptcy attorney that practices in Colorado and Wyoming. He serves as a Chapter 7 Bankruptcy Panel Trustee, and has to date administered over 8,000 Chapter 7 bankruptcy estates. Rob is a Certified Consumer Bankruptcy Specialist, and was nominated for Denver Business Journal’s 40 under 40 in both 2014 and 2016.