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, then a single spouse bankruptcy for joint debts may be advantageous, in some situations.
How Will Filing Bankruptcy Affect My Spouse?
If a husband files bankruptcy without his wife, then only the husband’s debts are discharged in bankruptcy and the wife’s debts are still unaffected. If the debts are held jointly, then the non-filing wife will still owe even after one spouse has filed bankruptcy.
When filing for bankruptcy, the bankruptcy filing will appear on the husband’s credit, but would not appear on the wife’s credit and there would be no adverse rating on her credit score because of the bankruptcy. A non-filing spouse should not have their credit damaged because of a spouse filing for bankruptcy.
How Will Filing Bankruptcy Affect My Spouse’s Property?
In a common law property state, your separate property that is under your name and not jointly with your spouse would become part of your bankruptcy. Your spouse’s separate property and their share of joint property are not included in your bankruptcy.
In a community property state, all community property is part of your bankruptcy even if you file without your spouse unless you have some exemptions.
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 repay 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.
If after your spouse has received your automatic stay and the creditor is still contacting or harassing your spouse about the debt, they should notify the creditor that they have filed bankruptcy and all communications should be stopped. A bankruptcy lawyer can also assist you or your spouse in contacting the creditor to have them stop the calls or communication.
Can I File for Bankruptcy without My Spouse’s Knowledge?
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 the bankruptcy court for debt repayment is garnishing their paychecks.
Even outside Chapter 7 bankruptcy, 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 for any marriage.
Do I Need a Bankruptcy Lawyer?
Filing for bankruptcy is a very complicated process. Bankruptcy law varies depending on where the action is filed and which chapter of bankruptcy is being pursued. A local bankruptcy lawyer will know the particulars of filing for bankruptcy, can recommend what chapter of bankruptcy is right for you, and can ensure that your paperwork is filed correctly.
If creditors are still trying to collect after a bankruptcy action has been filed, a lawyer may be able to halt such collection efforts and may be able to get you some money damages.