One common question that we often get from married individuals facing financial difficulty is whether they can file for bankruptcy without involving their spouse. The short answer is yes. Under 11 U.S.C. § 302, married individuals have the option to file for bankruptcy jointly, but they are not required to do so. Many married couples choose to file individually, with only one spouse filing, and there are several reasons why this might make sense depending on their unique financial situation. Filing for bankruptcy may be a difficult decision for anyone, and if a debtor is married, they must consider whether it makes sense to file individually or jointly.
Chapter 7 vs. Chapter 13 Bankruptcy
Before delving into the specifics of whether a debtor should file individually or jointly, it is important to understand the basics of bankruptcy. Whether filing a Chapter 7 or Chapter 13 bankruptcy case, the debtor will typically receive an automatic stay that stops all debt collection activity, including phone calls or correspondence from creditors or debt collectors. The automatic stay removes the garnishment of wages and unfreezes restrained bank accounts. Furthermore, it stays lawsuits filed against the debtor, including foreclosure proceedings, and even stops foreclosure auctions.
Chapter 7
Chapter 7 bankruptcy is a legal process in Federal Bankruptcy Court that enables individuals who are struggling with debt to obtain a relatively quick fresh financial start. The process requires a petition to be filed with the court that discloses a debtor’s income, expenses, assets, and creditors. When filing for Chapter 7 bankruptcy, a debtor is able to protect their assets, up to statutory limits, based on the exemptions available to them. Depending upon the facts of the case, a debtor can typically keep a certain amount of equity in a home, car, basic household contents, life insurance policies, and all of their retirement accounts. At the end of the case, which is usually 4-6 months from filing to closing, a debtor receives a court order that eliminates their dischargeable debts. The most common debts that are discharged are credit card debts and personal loans. Once the process is complete, a debtor is in a position to rebuild their credit, which often comes quicker than one would think.
Chapter 13
For Debtors that earn too much income to qualify for Chapter 7 bankruptcy, have unprotected assets that they could lose in Chapter 7 bankruptcy or are facing foreclosure, Chapter 13 bankruptcy is typically the better option. Chapter 13 bankruptcy is a more complicated process than Chapter 7. It involves a Court-approved repayment plan that is typically five years long but could be shorter. During this time, the debtor pays a bankruptcy trustee monthly payments that will be distributed to creditors once the plan is approved by the Bankruptcy Court. Depending upon the facts of the particular case, a debtor may only be required to pay back a percentage of unsecured debt to creditors. In those circumstances, the balance of the debt will get eliminated just like in a Chapter 7 case. For debtors facing foreclosure, the payment plan gives the debtor the opportunity to stop the foreclosure and get current on their mortgage by paying their arrears through the payment plan. Another benefit of Chapter 13 bankruptcy is that most debts get paid back interest-free, which provides tremendous savings to the debtor. Finally, creditors only have a limited time to file claims, so if a debt was listed and a claim was not properly filed, that debt is eliminated just like in a Chapter 7 case.
Both types of bankruptcy can be filed individually, but whether to file alone or jointly with a spouse depends on the specifics of the couple’s financial and sometimes personal situation.
Filing Bankruptcy Without Your Spouse
If you are married and living together, you are not required to file jointly with your spouse. Many married individuals file bankruptcy on their own, and in many cases, this can be beneficial depending on the circumstances. There are several reasons why someone might choose to file individually rather than with their spouse and understanding those reasons can help in making the decision.
Why Some People Choose to File Individually
There are several reasons why a married person may choose to file a bankruptcy case without their spouse. One common reason is the fear of bankruptcy by the non-filing spouse. Many people worry about how bankruptcy will impact their credit or the family’s finances. While it is true that the individual filing will experience some negative short-term effects on their credit, it is important to understand that filing for bankruptcy does not automatically hurt the credit of the non-filing spouse, especially if the spouse’s name is not a co-signer for the debt being discharged. Furthermore, bankruptcy can be used to obtain a fresh start and rebuild credit. Many of our clients actually see an increase in their credit scores, 100 to 150 points on average, after one year of receiving their discharge.
Another reason is that some couples maintain separate finances and may manage their individual debts independently. While some debtors may think this means they have separate households, in bankruptcy, if two married individuals are living together, they are considered one household. In addition, even if they try to manage their finances separately, they usually at least share some expenses such as rent or a mortgage payment and common household expenses. Also, some couples stay married, even if they are not in an amicable relationship and are not getting along. In such cases, the only impact on the non-filing spouse is the requirement to provide proof of income for the household.
In cases where one spouse is responsible for most or all of the debt, the other spouse might not need to file for bankruptcy at all. For example, if one spouse has credit card debt, medical bills, or personal loans, and the other spouse has little to no debt, the filing spouse may choose to file alone to eliminate the financial burden, seeing that there is no real reason for the other spouse to file.
Another factor to consider when deciding whether to file jointly or individually is the ownership of assets. For example, if the non-filing spouse has valuable personal assets such as an inheritance, a personal injury claim or an ownership interest in house that is beyond the exemption limits, they might not want to risk losing these assets in the bankruptcy process. Additionally, in situations where one spouse owns a business, an individual filing can protect the non-filing spouse’s business from being impacted by bankruptcy. By filing individually, the non-filing spouse’s assets are not at risk.
How the Non-Filing Spouse Can Benefit
While there may be some inconvenience to a non-filing spouse in the bankruptcy process of having to provide paystubs and other income information, a bankruptcy discharge can provide tremendous benefits to a household as a whole. In Chapter 7 bankruptcy, the debts of the filing spouse are discharged, which frees up income that would otherwise be used to pay creditors. The non-filing spouse can then benefit from the reduction in household debt, since the filing spouse will have additional income that can be used towards other household expenses and necessities.
Non-Filing Spouse May Help the Filing Spouse Qualify for Chapter 7
Ironically, a non-filing spouse may help the filing spouse qualify for Chapter 7 bankruptcy. If the debtor’s household income is above the median income and the means test applies, the non-filing spouse debt obligations may help the filing spouse qualify for Chapter 7 bankruptcy. Specifically, the non-filing spouse’s continuing monthly debt obligations such as payments for car loans, mortgage payments and the minimum on credit card payments can be used as deductions on a means test that may help the filing spouse pass the means test and qualify for a Chapter 7 case.
Joint Filing vs. Individual Filing
The decision to file jointly or individually is a deeply personal one and should be made based on each couple’s unique situation. While joint filing can be beneficial in some cases, particularly when both spouses have substantial shared debt, an individual filing may be more appropriate in other circumstances.
Filing jointly allows both spouses to discharge their shared debts and potentially lower their collective financial burden. It also consolidates the bankruptcy process, which enables the debtor to pay an attorney fee for only one case and have one set of case expenses. Joint filing is often the more straightforward option when both spouses have significant debt, as it can result in a cleaner financial slate for both parties at once.
On the other hand, it may make sense to file individually if only one spouse has substantial debt or if the couple manages their finances separately. When one spouse files individually, the non-filing spouse’s credit (provided there is no shared debt) and assets remain untouched. This can be especially important if the non-filing spouse is worried about the immediate effect on their financial standing. It is important to consider the impact on joint debts. If a couple has joint debt, the non-filing spouse will still be responsible for repaying that debt. For example, if both spouses share a credit card, the non-filing spouse may have to continue making payments on these debts, even if the other spouse’s bankruptcy discharges their responsibility for them. Therefore, understanding the scope of joint debt is critical in making the decision whether to file individually or jointly.
Contact the Law Offices of David I. Pankin, P.C.
Consulting with an experienced bankruptcy attorney is a crucial step in determining whether a married couple should file individually or jointly. At the Law Offices of David I. Pankin, P.C., we can help assess your financial situation, explain the pros and cons of each approach, and guide you through the bankruptcy process to help make the best decision for you and your spouse. You can schedule a free consultation by calling us at (888) 529-9600 or by using our easy online contact form.
