Filing for bankruptcy is already a stressful situation to find yourself in, but when you have a spouse to worry about you\’ll also be wondering exactly how your bankruptcy is going to affect them. The reality is that unless your bankruptcy filing is handled properly it could cause both you, and your spouse, unnecessary hardship.
The answer to the above question is yes, your spouse will be affected by your bankruptcy filing, but to what extent depends on whether you file for Chapter 7 or Chapter 13, and what your current financial status is in terms of jointly owned assets, and, more importantly, jointly owned debts.
Individual Filing
There is no legal requirement for your spouse to file bankruptcy with you, they can file separately if they wish. If you\’re unsure what the best course of action is in your particular case then please consult with an experienced bankruptcy attorney. This isn\’t something you can simply leave to chance, or at the discretion of the court.
Potential Impact
It\’s important for you to understand that if you individually file for Chapter 7 bankruptcy the protection offered by the court does not extend to your spouse, and in some cases could leave them fully liable for debts which you might have assumed were discharged along with everything else. There is no \”automatic stay\” protection for your spouse if you file for Chapter 7, so creditors can still pursue them for monies owed. If necessary the bankruptcy trustee can force the sale of any assets you co-own with your spouse – this can include your home. The complications here will arise from the fact that it can be difficult to figure out exactly who owns what in the relationship.
Common Law vs. Community Property
The actual ownership of your property is viewed differently depending on what state you live in. For example, some states apply Common Law to any property owned by you. Any property which you hold the title deeds for is entirely yours, but if ownership is not clear then this property will be viewed as jointly owned by you and your spouse. In Common Law states only your portion of the jointly owned property becomes part of the bankruptcy filing.
In states where Community Property applies, both marriage partners will be viewed as co-owners of any property, unless otherwise stated. It would be best to have actual ownership established well in advance of your 341 hearing. In Community Property states all of your property becomes part of the filing, even if your spouse doesn\’t file with you.
Chapter 13
In cases where you and your spouse have jointly accumulated a lot of debt, and also jointly own most of the assets in your personal \”estate\”, then a Chapter 13 filing makes far more sense. This type of bankruptcy petition will protect both you and your spouse from creditors pursuing you for any joint debts. Chapter 13 bankruptcies take far longer to complete, but they do offer you and your spouse a level of protection simply not possible under a Chapter 7 filing.
Your Credit Scores
One question at the forefront of most people\’s minds is how your credit scores will be affected by filing individually or jointly. If you file for bankruptcy separately to your spouse, then only your credit score will be affected. If you jointly petition for bankruptcy with your spouse, both of your credit scores will be affected.
The issue of joint vs. individual filing is a complex one, and one which is best discussed with a legal professional before you even attempt to complete even the initial paperwork of a bankruptcy petition.