Legal Effects When Only One Spouse Files for Bankruptcy
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Do I Have to File Bankruptcy with My Spouse?
If only one partner in a marriage owes debt, then only that partner should file for bankruptcy. Debts where spouses are joint and severally liable for payment will remain with the spouse who has not filed for bankruptcy. However, in states, that follow community property law, single spouse bankruptcy for joint debts may in some situations be advantageous.
Will My Credit or Property Be Affected If My Spouse Files Bankruptcy?
In general, one spouse filing for bankruptcy will not affect the other spouse’s financial situation, including the other spouse's credit rating. A debt is created by contract between a debtor and a creditor – each debtor must sign the contract to be liable for payment. Therefore, the bankruptcy of one spouse does not cause the other to become bankrupt.
Does Single Spouse Bankruptcy Change the Nature of Joint Debts?
Under Chapter 7 bankruptcy, when a spouse’s debts are wiped clean, the creditor can go after the other spouse. However, a major advantage of Chapter 13 bankruptcy, where the debtor plans to re-pay her debts, is that the creditor will leave the co-debtor alone, as long as bankruptcy plan payments are timely deposited.
Are There Any Exceptions?
While the bankruptcy of one spouse does not generally affect the other, there are some notable exceptions. For example, the bankruptcy of one’s spouse may show up on the other’s credit report if joint debt is involved – a contentious area of the law. Also, if applying for a joint loan in the future, the bankruptcy of one spouse will affect the creditworthiness of the applying couple.
Another exception has to do with jointly held property. In a normal bankruptcy, much of the debtor’s (non-exempt) property is hauled away by creditors. If that property is jointly held, it can also be taken away. This is of vital importance in community property states, states where both spouses in a marriage own and are responsible for all the debt and property acquired during the marriage. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
By the same token, after the community property is boxed up and hauled away, property acquired by the non-filing spouse after the spouse’s bankruptcy is no longer accessible by the non-filing spouse’s creditors. Any joint debts discharged by the bankruptcy of a single spouse also apply to the non-filing spouse. In other words, the non-filing spouse in community property states gets a partial advantage from her spouse’s bankruptcy. From that point on, creditors can only go after the non-filing spouse’s separate property such as that acquired before marriage, by gift during the marriage, or by inheritance.
Why Do I Get Phone Calls and Letters from Collection Agencies?
Sometimes collection agencies will pursue both spouses even though only one spouse owes debt. If you feel that the calls and letters asking for payment are only meant for your spouse but are still addressed to you, there are a couple of steps you can take to minimize the annoyance. First, you should request proof of responsibility for those debts from the debt collectors bombarding you with collection demands. Assuming that the debt is solely to your spouse’s name, you can ask the collectors to stop. If your spouse has already filed for bankruptcy, he or she can ask the bankruptcy court for an automatic stay to halt all collection activity.
Can I File for Bankruptcy without My Spouse’s Knowledge?
Legally and in theory, yes, it would be possible for one spouse to file for bankruptcy without the other partner ever finding out. However, Chapter 7 bankruptcy uses income as a test for eligibility and utilizes income garnishment as a means of settling debt. The non-filing spouse will certainly notice if his or her paychecks are being collected by the bankruptcy court for debt repayment.
Even outside Chapter 7 bankruptcy though, there are plenty of other ways for a spouse to discover his or her partner’s financial situation. Hiding bankruptcy is a temporary solution at best and is not healthy to any marriage.
Do I Need an Attorney?
If you are undergoing a bankruptcy, it is best to consult with a lawyer. A bankruptcy attorney will be able to advise you as to whether bankruptcy would be beneficial and which chapter of bankruptcy you should file for. Additionally, the attorney will be able to tell you whether your spouse will be affected in any way if you file for bankruptcy.
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Last Modified: 06-27-2014 02:59 PM PDT
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