Married debtors have the option to file bankruptcy jointly with a spouse, or to file an individual bankruptcy without including their spouse. Which option you should select depends upon your circumstances.
Individual Versus Joint Debts
Sometimes a spouse brings a large number of debts into a marriage. In that case, the other spouse often usually has no legal obligation to share the burden of those debts. If that is your situation, it might be advantageous for the spouse with the burdensome debts to file an individual bankruptcy without including the other spouse.
That will minimize the impact of the filing spouse’s bankruptcy on the credit score of the spouse who does not file, and will allow the non-filing spouse to continue making his or her loan and credit card payments without worrying that a bankruptcy filing will trigger a default of his or her individual debt.
On the other hand, debts that were incurred jointly — a mortgage loan in the name of both spouses, for instance — will not be fully discharged unless both spouses file a joint bankruptcy petition. To avoid having one spouse held responsible for joint debts after the other spouse’s responsibility for those debts is discharged in bankruptcy, both spouses will need to join in the bankruptcy filing.
Joint Versus Separate Ownership of Assets
If only one spouse files a chapter 7 bankruptcy, only the property owned by that spouse can be sold to satisfy that spouse’s debts. If one spouse owns a large amount of nonexempt property and most of the other spouse’s property is exempt, it might be beneficial for the spouse who owns the larger share of nonexempt property to avoid filing bankruptcy. That’s particularly true when the spouse with little nonexempt property owes most of the debt. That way, the spouses maximize the value of the assets that are protected from sale by the bankruptcy trustee.
The equation changes when the spouses own most of their property jointly or when combining their exemptions will protect more of their property from sale by the bankruptcy trustee. Some states allow spouses to combine (or double) their exemptions when they file bankruptcy jointly. If you live in one of those states and if one spouse doesn’t have enough exemptions to save his or her property from sale by bankruptcy trustee, filing jointly might let that spouse keep assets that would otherwise be sold.
Community Property and Tenancy by the Entirety
Some states are community property states. The distinction between individual and joint debt and between individual and joint ownership of property can become blurred in those states. If you live in a community property state, you should consult with your bankruptcy attorney to determine whether it is best for you and your spouse to file bankruptcy jointly.
In some states, property (usually real estate) that you and your spouse own as a “tenancy by the entirety” is excluded from the bankruptcy estate if only one spouse files but is included if both spouses file. The bankruptcy trustee cannot sell property that is not part of the bankruptcy estate. If you live in one of those states and if the title to your property shows that it is owned as a tenancy by the entirety, it might be best for only one spouse to file bankruptcy, particularly if your exemptions are not sufficient to protect your home from sale by the bankruptcy trustee if you file bankruptcy jointly.
The filing fee for an individual bankruptcy is the same as the filing fee for a joint bankruptcy. If one spouse files a bankruptcy and the other spouse later decides to file a separate bankruptcy, you each pay a separate filing fee. Filing a joint petition therefore saves money if both spouses will eventually end up filing bankruptcy.
Bankruptcy is complex and many answers depend upon your specific situation. If you still have questions you can schedule a free consultation with a bankruptcy attorney.