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Can One Spouse File for Bankruptcy?

Many people worry that bankruptcy could ultimately end their marriage if filing for it influences their spouse’s credit or the finances and property they share. Here are some answers for those seeking solutions for filing bankruptcy individually – even while married.

Can One Spouse File for Bankruptcy Without the Other?

There are situations in which individual debt may cause individuals to wonder, “Can one spouse file for bankruptcy?” Whether it is because debts were acquired before marriage or without the participation of the other spouse, there are times when only a single spouse truly qualifies for bankruptcy. But filers may worry that filing individually may negatively impact their spouse anyway.

So, can one spouse file for bankruptcy? The short answer is yes. However, the matter is much more complicated than most people might imagine. Several factors determine whether filing individually is even an available option for some debtors, as well as how successful the measure will be. These factors include but aren’t limited to:

  • Do you and your spouse own property together?
  • What are the laws of your state regarding that shared property?
  • Do you share debts with your spouse or are your debts individually incurred?
  • Are you planning to file for Chapter 7 bankruptcy or Chapter 13?

Can One Spouse File for Bankruptcy if You Share Debts?

Shared debts are one factor that can majorly impact the ability of an individual to file bankruptcy. If you and your spouse share debts, it may be best for the two of you to file for bankruptcy jointly. If you do not, the discharge of debts from bankruptcy may still impact your spouse financially. Additionally, creditors may still pursue your spouse for recovery of your debts, regardless of your choice to file independently.

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How Will My Bankruptcy Filing Impact My Spouse’s Credit

In general, a bankruptcy filing by one spouse will not affect the credit of the other spouse. This is not always the case, though, considering the discharge of your bankruptcy and corresponding debts may still appear on your spouse’s credit report. The discharge of joint debts – even if your spouse was not involved in filing and in bankruptcy proceedings – may still appear on your spouse’s credit report. When this happens, it is generally referred to as a phantom discharge.

Can One Spouse File for Bankruptcy if You Share Property?

Property is one of the most complicated aspects of bankruptcy when one spouse chooses to file individually. The laws regarding property division in bankruptcy vary from state to state and between Chapter 7 and Chapter 13 bankruptcies. Knowing what is likely to happen in your individual case will help you decide whether an individual filing is best for you.

If you live in a state with common law property laws, approximately half of the value of any property that you co-own with your spouse will be considered part of your individual bankruptcy estate. Property that you own individually will also be considered part of your estate, while property that your spouse owns individually will not be. If you co-own numerous properties with your spouse, you may be able to choose which ones are considered part of your individual estate; otherwise, your individual interest is used as a guide in determining this.

It is important to note that in Chapter 7 bankruptcy, specifically, the bankruptcy trustee appointed to your case may make the decision to sell your entire shared property to recover costs lost during the discharge of debt. Your joint property is especially at risk of being sold if it can not be easily divided or your individual interest cannot be determined. If this is the case, the trustee will generally award your spouse their portion of the sale price – half, in most cases – and use the other portion toward repaying your creditors.

States with community property laws are a bit different. In these areas, dividing property and assets between spouses who are still married can be very tricky. This is because community property law states consider all assets earned and property owned between two spouses as joint property. Essentially, if you purchased or acquired property or earned or obtained assets during your marriage, you co-own them equally with your spouse.

Of Special Note: The Chapter 13 Codebtor Stay

If you share financial obligations with your spouse, filing for Chapter 13 bankruptcy is a solid choice for protecting them from being pursued by creditors. This is because Chapter 13 bankruptcy includes a provision known as a codebtor stay. This provision disallows creditors from continuing to pursue any codebtors you have, including your spouse.

Keep in mind, though, that if you are not diligent in maintaining your repayment plan – an important part of any Chapter 13 bankruptcy – that the court can be asked to lift the codebtor stay. To protect your spouse from potential problems related to your bankruptcy, be sure to follow the guidelines of your bankruptcy precisely – and consult a financial legal professional if you require assistance.