Can A Spouse File Bankruptcy Alone?

Can a spouse file bankruptcy alone? Read on to find out…

The personal bankruptcy process was set up to help those in financial need.  The U.S. Bankruptcy Code allows both couples and individuals to file bankruptcy, and just because you are married or in a common law relationship does not mean you cannot file bankruptcy alone.  If your spouse in not in financial trouble they will not automatically be brought into bankruptcy and you will be able to file your petition individually; however, the benefits will differ depending on the chapter you choose to file under and the state in which you live.

Your first step will be to decide whether to file under Chapter 7 or Chapter 13.  You will have to complete a means test to determine the amount of disposable income you have available to contribute towards paying off your debts.  At this stage salary and other asset information is required from both you and your spouse as it is your combined income that will be taken into consideration to determine if you are eligible for Chapter 7 or 13.  If you have sufficient funds, you will be able to file under Chapter 13.  Claiming bankruptcy under Chapter 13 involves setting up a repayment plan to be overseen by a court appointed trustee for a period of 3-5 years.  If you do not have sufficient disposable income, you will have to file a traditional liquidation bankruptcy claim under Chapter 7 which involves your assets being sold off to pay your creditors.

Whether you file a single or joint petition basically depends on the amount of community debt involved and the property involved.  In most states, if there are any joint debts, they will not be discharged under Chapter 7 and the creditors will look to your spouse to repay the full amount owed.  If the debts are 100% repayable under Chapter 13, the automatic stay granted during bankruptcy will apply to your spouse as well.  It is important to note that marriage doesn’t make all debts joint as both spouses need to have signed for the loan, credit card, etc.  Anything that was entered into together, such as a joint tax return, will hold both spouses liable for any amount due.  When the bankruptcy has been finalized, make sure to check the credit report of your non-filing spouse as it should not be noted but sometimes is.

Although the U.S. Bankruptcy Code is federally controlled, exemptions may differ from state to state.  There are also nine states that are considered to be community property states and bankruptcy has different advantages and disadvantages for couples in these states.  Basically couples can take advantage of community property discharge, meaning that the non-filing spouse also gets the benefit of bankruptcy discharge without having to file for it themselves.  The disadvantage is that in community property states, spouses equally own any property acquired during marriage; therefore, all of it becomes part of the bankruptcy estate, even if only one spouse files for bankruptcy.

Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Common-law states differ in that a filing alone leaves the non-bankrupt spouse liable to their share of any joint debts and wipes out only the portion of the spouse filing the petition.  It is important to note that if you attempt to keep any property safe from bankruptcy by transferring it to your non-filing spouse within one year of filing, it will be considered fraudulent and will be turned over to the trustee to become part of the bankruptcy estate.  It could also result in a denial of discharge.

Although the actual process of filing a single bankruptcy petition is relatively simple, it is always best to consult a qualified bankruptcy attorney who will be able to guide you through any aspects that may not turn out to be as straight-forward as expected.  Your attorney will be able to advise you whether it is best for file a single or joint petition, which Chapter of the U.S. Bankruptcy Code would be most beneficial to file under, and how to minimize your loses during the process.  While a spouse can file bankruptcy alone, make sure to consult an attorney to find out whether it is the best option for your situation.

To learn more about the personal bankruptcy process and to find out if bankruptcy is right for you, consider filling out our free bankruptcy evaluation.