No law says you must file bankruptcy jointly with your spouse. She might not want to file, or she may want to file an individual petition of her own. Each of these options is perfectly OK with the court, but depending on your personal circumstances, filing alone may have a few downsides.
Rules for Income
Filing for bankruptcy without your spouse is a simple matter of completing a petition and the schedules on your own, listing only those debts you’re contractually liable for. But there’s a catch – you must still include your spouse’s income, according to Ross Smith, a bankruptcy attorney in Ohio.
This may seem unfair, but her income helps you make ends meet. Bankruptcy is all about that financial equation – the income you have left over after paying necessary living expenses each month, money that’s available to pay down your debts. If your mortgage or rent payment is $2,000 a month and you’re single, you’re responsible for coming up with that money on your own. If you’re married, the court takes the position that you’re only technically responsible for half that amount, or $1,000. This frees up more disposable income for your creditors if you file for a Chapter 13 repayment plan, and may increase your plan payments to the trustee. It also can prevent you from passing the means test to qualify for Chapter 7, in which case you'd have to file for Chapter 13 instead.
Rules Regarding Property
The bankruptcy trustee sells your non-exempt assets in Chapter 7 to raise money for your creditors. If you file without your spouse, the trustee can access only your 50 percent ownership in joint assets in most states. This might sound like a good deal on the surface, but it means the trustee can force the sale of jointly-owned property to liquidate your share. He can use 50 percent of the equity to pay down your debts, and then must return the cash equivalent of your spouse's 50 percent equity to her. Your spouse may get the money, but you’ve jointly lost the asset.
Rules Regarding Debts
Joint debts may be the biggest reason to think twice about filing for bankruptcy without your spouse. The Moran Law Group in California indicates that your bankruptcy discharges your liability for loans you and your spouse contracted for together, but your spouse is still on the hook for payment if she doesn’t also file for bankruptcy. If you and your spouse jointly took out a credit card that now has a $10,000 outstanding balance, the creditor doesn't particularly care that you've filed for bankruptcy -- it can just pursue your spouse for that $10,000 instead because she's still liable for it. Your marriage hasn’t actually escaped this debt -- your household is still responsible for paying it off and it remains a necessary consideration in your monthly budget.
Community property states have unique rules for marital property that can affect bankruptcy proceedings. Nine states follow community property law: Wisconsin, Texas, Nevada, Idaho, Arizona, Washington, New Mexico, Louisiana and California. Community property law treats all marital assets and debts as being owned and owed by the marriage, not you and your spouse individually. If you file for bankruptcy in one of these states, 100 percent of your non-exempt community property – not just your half -- is available to the Chapter 7 trustee for liquidation to pay your creditors, even if the property is titled solely in your name.
There’s one silver lining, however. Creditors can’t shift their collection efforts to your spouse to collect on debts incurred during your marriage – when they’re discharged, they’re gone. She’s no longer liable for the full balance as she would be in other states -- though if she owns separate, non-marital property, creditors can still pursue this in satisfaction of the debt if she jointly signed for the loan.
- Nolo: Filing Bankruptcy Without Your Spouse – What Happens to Debts and Property
- Moran Law Group: How Is My Spouse Affected If I File Bankruptcy Alone?
- Ross Smith: Does My Spouse Have to File for Bankruptcy With Me?
- AllLaw: Bankruptcy Filing Options for Married Couples
- Nolo: Marriage and Property Ownership – Who Owns What?