Question: Can Just One Spouse File Bankruptcy In Wisconsin
An attorney friend called me to ask about a single spouse bankruptcy filing. A single spouse filing is a case in which only one spouse files while the other does not.
The couple owned a home and had significant equity in that home, more than the filing debtor could exempt. Wisconsins homestead exemption is $75,000 per spouse.
In this instance there would be about $200,000 of equity. The debtor would be able to claim the $75,000 exemption, leaving $125,000 available for the bankruptcy trustee to distribute to creditors.
The attorneys thought process was logical. He reasoned that one-half of that $125,000 could be taken by the trustee. This is because Wisconsin is a community property state and spouses each have an undivided one-half interest in most assets.
But logic does not always prevail. Fortunately, the debtor had not yet filed. I advised the attorney that the trustee would be able to take the entire $125,000 which was not claimed exempt. He would be far better off having both spouses join in this particular filing. Then they could each claim a $75,000 homestead exemption, for a total of $150,000.
When a debtor files bankruptcy, all interest in community property go into the bankruptcy estate, not just the one-half interest owned by the debtor. This means that all the equity from the home would have gone into the bankruptcy estate.
But single spouse filings must be approached with great caution. They can prove very costly.
Husband Files For Bankruptcy And Wife Doesnt
There is no such thing as community debt. If husband files for bankruptcy under Chapter 13 or otherwise, his debts will be discharged at the end of the bankruptcy. Wifes debts will still exist and she will be required to pay them and be subject to aggressive creditor action.
Community property and assets owned by both spouses are protected, however, when husband files for bankruptcy. That means husbands creditors cannot touch assets that wife owns. However, creditors can still initiate actions against wife if she has not filed for bankruptcy and they can initiate actions against his share of community property.
In addition to there not being any community debt, there is no such thing as a community discharge. If the spouses want to discharge their collective debts together, they will have to file their Chapter 13 jointly.
The bankruptcy will not appear on wifes credit report, only husbands.
The Bankruptcy Community Discharge
The bankruptcy discharge is a court-ordered injunction prohibiting collection of pre-petition debt. It permanently bars creditors from pursuing the debtor who filed bankruptcy for payment. But what about the non-filing spouse of the debtor? Can creditors still pursue him or her for collection on debt that was incurred during marriage?
In the bankruptcy world, there is something called a community discharge. Even when only one spouse files a bankruptcy petition, the marital community also receives a discharge. This means that the marital community is protected from the claims of creditors for debts included in the bankruptcy. For example, the non-filing spouses wages cant be garnished because his or her wages are community property. Likewise, creditors cannot reach a bank account holding community funds. However, the protection for the marital community does not extend to the non-filing spouse personally. Creditors can still collect against any separate property owned by the non-filing spouse.
Below is a hypothetical to illustrate how a non-filing spouses separate property is at risk following a community discharge:
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Can One Spouse File Bankruptcy
Does a married couple have to file bankruptcy together, or can just one spouse file bankruptcy? Whether due to wanting to protect a loved one from stress and anxiety, embarrassment from bankruptcy when married, or financial strategizing, there a host of reasons why a spouse may wish to file bankruptcy independently of their husband or wife.
We discuss the possibilities and best courses of action for claiming bankruptcy when married and answer if you can file bankruptcy separately from your spouse, in the following article. Reach out to our Houston bankruptcy lawyers today for more guidance on your specific case.
Your Home And Bankruptcy
Its very hard to keep your property when filing for bankruptcy and even if your spouse owns it jointly, its unlikely theyll be able to secure enough money to prevent it from being sold, if there is substantial equity. However, here are the options available if you do wish to stop your home being used as an asset:
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How Many 18 Year Olds Get Married
In the United States, the declines have occurred among all age groups, but are most dramatic among young adults. Today, just 20% of adults ages 18 to 29 are married, compared with 59% in 1960. Over the course of the past 50 years, the median age at first marriage has risen by about six years for both men and women.
Community Property Versus Common
Whether a state is or isnt a community property state can also factor into bankruptcy proceedings. In community property states, all property acquired during the marriage belongs to both spouses. That can create a complex situation during bankruptcy filings. Arkansas, however, is not a community property state. As a common-law state, the person who bought the property during the marriage owns it.
How Long Does Bankruptcy Stay On A Credit History
A bankruptcy will be reflected on credit history for 6 years, but it is possible to apply for and obtain new credit within as little as two or three years . Many people who file bankruptcy go on to successfully get a new credit card, mortgage or vehicle financing within just a few years of bankruptcy discharge / completion.
Single Spouse Bankruptcy: Does Declaring Bankruptcy Affect Your Spouse
You are in either a common-law relationship or are married. You are thinking about filing bankruptcy alone as a single spouse bankruptcy without your partner filing. You have actually possibly questioned just how will your bankruptcy affect your spouse. The bright side is that in the vast bulk of situations, your bankruptcy will have no influence on your spouse. In most cases, there will be no legal effects when only one spouse files for bankruptcy.
The purpose of this Brandons Blog is to discuss the financial and legal implications of a single spouse bankruptcy. No doubt the stress and strain of one spouses debt load will place a strain on the household and the partner. Providing marriage advice is not my specialty, but insolvency is.
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Chapter 13 Bankruptcy Without Your Spouse
If you and your spouse make too much money to qualify for a Chapter 7 Bankruptcy alone or as a couple, you could be forced to switch to a Chapter 13 filing.
In Chapter 13 Bankruptcy, not as much debt is wiped out. You would create and follow a three to five-year plan to pay off a portion of your debt. If you complete the payment plan, you become eligible to receive freedom from some of your debt.
You can file for Chapter 13 relief individually. You dont have to pass a means test however, if your spouse earns a significant income, that could increase the payments you are expected to pay towards your outstanding balances. The marriage adjustment could provide an out in this case too. Those deductions from your total joint income could lower the payments youd be expected to make.
Filing For Chapter 7 Bankruptcy Without Your Spouse
Chapter 7 is considered a liquidation filing. In other words, nonexempt assets are sold to pay off as much debt as possible. Debt is discharged, and the filer lives with the hit on the credit report and score for the next 10 years.
A means test is required when filing Chapter 7 bankruptcy it basically determines if you qualify for Chapter 7. Its based on household income from six months before filing the petition. If the couple shares the same house, your spouses income must be included in the means test, even if you filed on you own. Expenses that do not benefit the household can be subtracted from the spouses contribution to the household income. More on that to come.
Once Chapter 7 is filed, an automatic stay is put in place. This legal action stops garnishments, foreclosures, repossessions and any debt collection lawsuit. But the stay only applies to the individual who files. If there is any joint debt shared by the couple, the spouse continues to remain responsible for that debt.
Its important to know if you live in one of the nine community property states. If so, the automatic stay extends to the community property of the couple that was earned or acquired during the marriage. This typically means the non-filers wages cannot be garnished for community debt in those nine states.
Once the Chapter 7 filing is discharged, the only person protected by the discharge is the individual who filed. The non-filing spouse remains liable for any joint or co-signed debts.
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Reasons For Individual Bankruptcy Filing
Sometimes people with extremely different financial situations get married before realizing that significant debt problems exist. For instance, one spouse might have an excellent credit rating and have acquired substantial property before marriage. By contrast, the other might have accumulated considerable debt and a 450 credit score. In many cases, individual bankruptcy will wipe out the indebted spouses qualifying debt without negatively affecting the non-filing spouses credit or property.
Community Property State Vs A Common Law State
Whether you live in a community property stateproperty acquired during the marriage belongs to both memberscan affect how the bankruptcy is conducted. If you and your spouse live in a community property state, your property is a separate entity called the community.
You can own property separately that you brought into the marriage, or that you were given or inherited in your name only during the marriage. However, most property acquired during the marriage is considered property of the community.
This affects what property becomes part of the bankruptcy estate, whether the trustee can take the property to pay creditors, which debts will be discharged, and who gets the benefit of the discharge.
The list of states that recognize community property is relatively short. The rest of the U.S. states are common law stateswhere property acquired during the marriage solely belongs to the person that bought it. The following are community property states:
Going back to our example, because Mark and Ellen live in Texas, a community property state, all the property they’ve acquired since they married is part of the community. This includes their home, their cars , and even the income from their jobs.
Alaska is technically not a community property state by default, but married residents can opt into treating their assets as community property.
Mayone Spouse File Bankruptcy
In some cases, a married husbandand wife may desire one spouse to file for Chapter 7 bankruptcy and nottheother spouse.
Normally,if one spouse files a Chapter 7 bankruptcy, the other spouse becomes asilentbeneficiary who benefits from the other spouse’s bankruptcy discharge. Some call the non-filingspouses discharge aphantom discharge. But just one spouse filing bankruptcy does containcertain risks.
Thisletter contains basic and very general rules. This letter does not discuss certain potentialexceptions.
Letssay two unmarried persons owe a joint debt. Then, one ofthe persons receives a bankruptcy discharge. The other party then remains liable to pay the debt.
But Californiaisa community propertystate. So, lets say both husband and wife owe adebt. Husbandfiles bankruptcy and getsthe debt discharged. Wifedoes not filebankruptcy. Then,the wife still owesthe debt. She canstill be sued by acreditor. Butpractically, thebankruptcy discharge causes the debt to notbe collectible from the wife.
Butif thehusband dies, or if the couple divorces, or if the wife owns non-exempt separate property, then the creditors may be ableto sue and actually collectagainst the wife after the bankruptcy discharge. Also, if themarried couple moves to a non-community property state, such mightpossibly open the door for a creditor to collect the debt.
Theabove rules also apply if the wife had her own debts and did not filebankruptcy.
Backto the discussion:
Filing Bankruptcy In Michigan: Does Your Spouse Have To File Too
A common misperception is that if you file for bankruptcy, your spouse is required to file as well. This is simply not true. You have the choice to file jointly or file by yourself. At the time of the free consultation we may discuss the implications of filing alone or with a spouse. There are factors to consider and we will carefully lay out your options.
Filing Bankruptcy and Your Spouses Credit
Another common concern is that if you file for bankruptcy, it will negatively impact your spouses credit. Here is the breakdown:
How Do You Determine Who Should File?
- What is the nature of the debt?
- Is there joint debt? If so, what is the amount of the debt?
Considering the above, each spouse has the individual choice on whether or not to file. If both spouses have significant debt we typically recommend they both consider filing as it is less expensive to file jointly than 2 singular cases. We also want to ensure that the couple leaves the process with a balanced budget and all obstacles removed for a fresh financial start. If the debt is mainly in one person’s name, then we would typically recommend that just that spouse file. This allows the non-filing spouse to apply for immediate credit like a home mortgage, etc., if desired.
Bankruptcy Documents and Your Spouse
For the non-filing spouse:
Experience is on Your Side
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Preserving The Other Spouses Credit Record
A common reason given for one spouse not wanting to file is to protect his or her credit record. Thats a sensible enough goal. And not only for the non-filing spouse. If it works the couple itself could benefit through the non-filing spouses subsequent access to credit on behalf of their household. That non-filing spouse may even be able to help the filing spouse re-establish his or her good credit through co-signing of new debts and such. Many times when one spouse has a small amount of debt, we suggest leaving them out of the bankruptcy.
But be careful with assumptions about being able to keep the others bankruptcy filing completely out of the non-filers credit record. This is especially if you have a joint debt or two, including ones that you intend to continue to pay and keep outside the bankruptcy case, such as a home mortgage or vehicle loan. Although credit reporting agencies are not supposed to refer to a co-debtors bankruptcy filing in the non-filers credit reports, dont simply assume that will happen appropriately. Mistakes like this happen a lot, and your attorney can tell you how to address it.
So its all the more important for the non-filing spouse to review his or her credit report before the other spouses bankruptcy is filed and then very regularly thereafter to make sure theres no reference, directly or indirectly, to the bankruptcy case.
Community Property And Debts In Bankruptcy
All separate property owned by the debtor, and community property owned by the debtor and his/her spouse, must be disclosed in the bankruptcy schedules filed with the court. Therefore, if you file bankruptcy without your spouse, you must list your separate property as well as all community property. For example, if your non-filing wife purchased a vehicle while you were married, that vehicle must be disclosed in your bankruptcy schedules, even if it is titled in just her name. But you are not required to disclose your spouses separate property. With a few exceptions, the debtors separate property, and all community property, becomes property of the bankruptcy estate upon filing a bankruptcy petition. There are, however, exemptions available to protect certain assets, not only for the benefit of the bankruptcy debtor but also his or her non-filing spouse.
Similarly, all debts, both separate and community, are listed in the bankruptcy schedules. If you are filing bankruptcy without your spouse, and your spouse has a credit card in his or her name with a balance that was incurred while you were married, you must disclose it as a community debt in your bankruptcy schedules. Although you dont have contractual liability for the debt, you do have community liability by virtue of your marriage.
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Contact A Bankruptcy Lawyer Serving Couples In The Los Angeles Area
Couples take their marriage vows and pledge to love their partners in sickness and in health, and that should include financial health as well. Your spouse may not want you to face bankruptcy alone, but there are advantages to keeping your partner far away from the harmful aspects of the process.
The bankruptcy attorneys with the Law Offices of Steers and Associates have an extensive background in arming families with the knowledge they need to make these difficult decisions. No matter who ends up filing for bankruptcy, we want to make sure both partners find the financial freedom they are seeking.
When your family faces bankruptcy in Los Angeles or anywhere across Southern California, please contact us as soon as possible. We offer a free and confidential case evaluation to anyone considering bankruptcy. Let our local bankruptcy attorney look over your portfolio so we can determine your best next step.
Fremont Bankruptcy Attorney Blog
By Ryan C. Wood
A common law marriage is when a couple holds themselves out to be married but the spouses did not actually have a marriage ceremony or go through any of the formalities of a marriage. You need to obtain a marriage certificate. California does not recognize common law marriages. There are other states that do recognize some form of common law marriage, but California is not one of those states. The types of marriages that are currently recognized in California are 1) traditional marriage, 2) domestic partnership, and 3) same sex marriage.
California is a community property state, which means that all assets accumulated during marriage are considered property jointly owned by both spouses even if only one spouse purchased or earned that asset . The separate property of either spouse is not liable for the debts incurred by the community.
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