Founding Attorney
Spouses can file joint bankruptcy petitions. However, they are not required to file together. Both spouses must understand how bankruptcy may affect a non-filing spouse if they are not filing a joint bankruptcy. In this blog, our Massachusetts bankruptcy attorney helps you understand the impact bankruptcy has on a non-filing spouse.
Potential Consequences for a Spouse When Their Spouse Files an Individual Bankruptcy Case
In most cases, a non-filing spouse does not experience any adverse effects when their spouse files a bankruptcy case. However, that is not always the case. There could be situations where their spouse’s bankruptcy case might impact a non-filing spouse.
Joint Debts
If you and your spouse have joint debts, you could be personally liable for the entire debt. Bankruptcy discharges most unsecured debts. A bankruptcy discharge eliminates the legal obligation to repay a debt. Therefore, if you and your spouse owe $10,000 on a joint credit card, you owe the entire $10,000 after your spouse receives their discharge. If you do not pay the debt, the creditor can pursue a debt collection lawsuit and other legal remedies against you.
Credit Report
Your spouse’s bankruptcy should not impact your credit report unless you have joint debts that you do not pay. However, creditors or the credit bureau may mistakenly report your spouse’s bankruptcy on your report. It is wise to review your credit reports and correct any mistakes.
Non-Exempt Assets
Bankruptcy exemptions protect equity in specific assets. Non-exempt equity in assets can be used to pay creditors. In Chapter 13 cases, the non-exempt equity is added to the plan payments instead of selling the asset.
In a Chapter 7 bankruptcy, the trustee can seize non-exempt assets and sell them to pay creditors. Even though a non-filing spouse’s equity is not subject to bankruptcy, they may need to pay the Chapter 7 trustee their spouse’s equity to keep the asset. Otherwise, the Chapter 7 trustee should pay the non-filing spouse their share of the equity when the asset is sold.
When Should a Spouse File an Individual Chapter 7 or Chapter 13 Bankruptcy?
In some situations, a spouse may want to file an individual bankruptcy case instead of filing jointly with their spouse. Examples include:
- One spouse does not have substantial debt, and they can afford to pay the debts they owe.
- A spouse may anticipate receiving money or assets that would not be exempt.
- The spouses disagree about filing bankruptcy, and/or there is a lack of cooperation.
- Protecting the non-filing spouse’s credit history and credit score.
- The non-filing spouse is a business owner.
- Protecting the non-spouse’s ability to file for bankruptcy later.
- The couple’s prenuptial agreement required all finances to be separate.
Before deciding whether to file a joint or individual Chapter 7 or Chapter 13 bankruptcy, consult with an experienced bankruptcy lawyer. Your specific situation determines which option is best for you and your spouse.
Learn More During a Free Consultation With a Massachusetts Bankruptcy Attorney
Whether spouses should file individual or joint cases depends on many factors. Call Logan A. Weinkauf, P.C., to discuss your options with an experienced Massachusetts bankruptcy attorney. You can get the fresh start you need to recover from a financial crisis.