Bankruptcy Law

What Happens When One Spouse Files for Bankruptcy?

Financial challenges affect everyone. But for a married couple, the decision to file bankruptcy can be an especially frightening and disorienting time. And with so much at stake financially and emotionally, making the right choices about how you file for bankruptcy once you determine that you should file for bankruptcy is of utmost importance. One of those decisions will be whether you should file for bankruptcy individually or with your spouse.

Filing for bankruptcy protection can be a complex process. If you have questions about whether to file individually or jointly with your spouse, talk to a bankruptcy attorney who can work on a plan that fits your unique situation.

Can One Spouse File for Bankruptcy Without the Other?

The short answer is yes, a married person can file for bankruptcy individually. The bankruptcy laws in the United States allow an individual to seek bankruptcy relief independently, regardless of their marital status. This means that if one spouse is facing insurmountable debt while the other spouse is financially stable, the struggling spouse can file for bankruptcy on their own.

In most cases, spousal consent is not required for an individual to file for bankruptcy. Each spouse has the right to make independent decisions regarding their finances and seek bankruptcy protection if necessary. However, it’s essential to note that one spouse’s bankruptcy filing can still affect certain joint debts, where both spouses are legally liable.

What Happens to Each Person’s Debts?

The treatment of each spouse’s debts during bankruptcy can depend on several factors, including the type of bankruptcy being filed (usually either Chapter 7 bankruptcy or Chapter 13 bankruptcy from the U.S. Bankruptcy Code, the set of laws governing bankruptcy) and the state’s laws where you reside. Let’s explore the potential scenarios:

  • Separate debts: One spouse’s debts are typically not impacted by the other spouse’s bankruptcy filing. An example of this would be a credit card in one spouse’s name. Your non-filing spouse’s credit and assets remain unaffected, and they are not legally responsible for your individual debts.
  • Joint debts: If you file for bankruptcy individually, the bankruptcy may discharge your liability for the joint debts, relieving you of the obligation to repay. However, your non-filing spouse remains responsible for the entire debt unless they also file for bankruptcy protection.
  • Community property states: In these states — Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, Louisiana, and Wisconsin — debts taken on during the marriage are generally considered community debts. This means that both spouses may be responsible for the entirety of the debt, regardless of who incurred it. In such cases, a bankruptcy filing by one spouse may still impact the non-filing spouse’s liability.

Things To Consider

Making a decision about whether to file bankruptcy individually or jointly is not something you should take likely. Here are some things to think about:

  • Communication and transparency: Open and honest communication between spouses is crucial when considering bankruptcy. Discuss your financial situation, debt burdens, and the potential impact of bankruptcy on both partners.
  • Seeking professional guidance: Consulting with a qualified bankruptcy attorney is highly recommended. A bankruptcy lawyer can help you navigate the complexities of bankruptcy laws, assess your specific situation, and provide tailored advice to protect your interests.
  • Determining the best bankruptcy chapter: Chapter 7 and Chapter 13 bankruptcy have different eligibility requirements and consequences, both long-term and short-term. Understanding the benefits and drawbacks of each chapter is essential in making an informed decision.
  • Impact on credit scores: Bankruptcy can have a significant effect on credit scores for both spouses. Understanding the long-term consequences and exploring strategies for rebuilding credit after bankruptcy is essential. Discuss your long-term goals, repayment options, and anticipated credit requirements — will your kids require student loans, do you anticipate moving, etc. — to determine the best course of action.
  • Joint vs. separate filing: Assess whether it’s beneficial for you and your spouse to file jointly or if it makes more sense for only one of you to file. Joint filing can discharge both individual and joint debts, providing comprehensive relief, but it’s crucial to evaluate the potential impact on assets and future financial goals.

A Bankruptcy Attorney Can Help

For married people facing debt, the prospect of bankruptcy can offer relief and a fresh start. However, the process can be complex, as the U.S. Bankruptcy Code is notoriously complicated. An attorney who specializes in personal bankruptcy can help you navigate the process, with your rights and interests intact.

Remember, each situation is unique (including yours), and consulting with a bankruptcy is the best first step toward making informed decisions tailored to your specific circumstances.

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