Lines Of Credit In Both Spouses Names
A Chapter 13 bankruptcy filing may become more complicated and hazardous for the non-filing spouse if the unsecured debt has both the filing and non-filing spouses names on the agreements. If the filing spouse does not fully repay the jointly held unsecured debt in their Chapter 13 bankruptcy, the creditor may have the right to pursue the non-filing spouse for payment after the balance of the debt has been discharged. This could also be the case for any secured property that is surrendered during the bankruptcy. For example, if the couple jointly held a mortgage on a property that had a deficiency balance after it was auctioned off AND that balance was discharged at the end of the Chapter 13 bankruptcy repayment term, the mortgage company may pursue the non-filing spouse for payment after the bankruptcy case is closed.
On the other hand, if the bankruptcy debtor repays all of his debt in that 3 to 5 year period, the non-filing spouse wont have a problem but that is not likely because that rarely happens. Before filing for bankruptcy, married debtors need to candidly discuss the ramifications of bankruptcy with both their non-filing spouse and their bankruptcy attorney. In some cases it may actually be beneficial for a married debtor to file a joint bankruptcy so that they can protect their spouse and by extension the assets of their household.
Reasons To File Without Your Spouse
Circumstances that may make it wise to file without your spouse include:
- You keep all finances separate, and have documentation to prove that
- There is a prenuptial agreement
- Debts are in your name only
- Your spouse already has filed bankruptcy and is not yet eligible for a discharge
- Your spouse may soon be receiving an inheritance
- You want to ensure your spouse has the ability to file in the future, if needed
For example, if the debt truly is the husbands alone and not his wifes, filing without your spouse in most cases will protect her credit score. However, the credit score may be negatively impacted if there are joint assets and the ripple effect of bankruptcy makes it impossible or challenging to stay current on those debts. Your spouse remains just as responsible for those debts.
Your state of residence also affects the decision, especially if it is one of the nine community states . In community states, all marital assets become part of the bankruptcy estate, which is automatically created on filing. It consists of both husband and wifes property and assets, which means assets in the spouses name are part of the proceedings.
Careful assessment of your financial situation and the local rules all come into consideration.
Does Community Debt Exist
Although some people also refer to debts incurred during the marriage as community debts, there really is no such thing. The spouse that incurs the debt is the one that is liable for it.
There are a few exceptions that usually arise when the non-filing spouse gets the benefit when the debt was used to acquire necessities.
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When Should You File For Bankruptcy Without Your Spouse
Filing bankruptcy alone makes sense under these circumstances:
- If you and your spouse have separate debts
- You and your spouse keep your finances separate
- If your spouse has assets they dont want to lose
- If your spouse has a good credit record and has not co-signed for any of your debts
- If your spouse recently filed for bankruptcy and not yet eligible for a discharge
- If you want your spouse to still be able to file for bankruptcy in the future
- Your spouse expects some financial gain, such as an inheritance in the near future.
When Doesnt It Make Sense To File Without Your Spouse
Itâs rarely clear cut whether it makes sense to file with or without your spouse and in the end it depends on your financial situation and what state youâre filing in.
Here are a few common reasons folks want to file without their spouse that donât really hold up when you look at the full picture:
You donât want to impact your spouseâs credit : Unless they stay current and pay off all joint debt, their credit score will be negatively affected by your bankruptcy. Plus, your bankruptcy discharge wonât protect them from debt collectors.
You donât want to include your spouseâs property in the bankruptcy estate : All your marital assets are part of the bankruptcy estate whether you file together or not. Even if youâre not in a community property state, if you have joint property filing alone may not be enough to protect your spouseâs property interests.
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Debts That Can Get Discharged
We know that dealing with bankruptcy can be challenging, especially if you dont know what debts you can get discharged. If youve got any legal judgments that are present against you those can get discharged by way of bankruptcy.
If youve got any specific responsibilities that youre locked into because of a lease, that can get discharged. Other things, like or medical bills, also qualify. In some cases, unless you can provide a solid case for why something should get discharged, it will remain on your credit report.
Or if a creditor takes the time to argue why you should still pay or why you owe money for a specific debt, there could be a chance that its not discharged.
Why Are Collection Agencies Contacting Me And My Spouse
It is not uncommon for collection agencies to pursue both spouses, even though only one spouse owes them a debt. If you feel that their attempts to collect payment are only meant for your spouse, but are still addressed to you, there are some steps you should take in order to minimize the annoyance caused by them.
Your first step should be to request proof of responsibility for those debts, from the debt collectors that are contactingyou with collection demands. If the debt in question is solely in your spouseâs name, you can ask the collectors to stop.
If your spouse has already filed for bankruptcy, they should ask the bankruptcy court for an automatic stay. This will halt all collection activity. If after your spouse hasreceived their 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. They should tell them that all communications should be stopped.
If at that point the debt collectors continue to contact the non-filing spouse, the debt collectors may be in violation of the Federal Fair Debt Collection Practices Act or the state law that protects debtors. The FDCPA is a federal law that protects debtors from harassment, unfair debt collection practices, and threats from debt collectors. Local fair debt collection laws, such as Texasâ Fair Debt Collection Practices Act, may also provide debtors additional protections.
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Protecting Your Property Personal Items And Privacy
People often wonder whether filing bankruptcy without their spouse will protect their home, car, and treasured personal possessions. Will filing alone safeguard these things and prevent your spouse from being hounded for payments?
In Indiana, if your spouses name is on the debt, they can still be pursued for payments after the debt is discharged in your name. This means a foreclosure, repossession, garnishment, or other action can continue against your spouse even after youre freed of it through bankruptcy but only if their name is on the debt.
This is certainly something to consider before filing bankruptcy without your spouse. However, dont give up hope if your spouses name is on much of your debt.
Indiana allows you to protect your home and some types of personal property through exemptions. An Indiana homestead exemption, for example, could protect the family home so you dont lose it. Ask your bankruptcy attorney about applicable exemptions.
Youll also need to choose between Chapter 7 or Chapter 13 bankruptcy. If you opt for Chapter 13, an automatic co-debtor stay prevents creditors from hassling either you or your spouse about shared debts. But a Chapter 7 automatic stay applies only to you, allowing creditors to keep contacting your spouse.
Will My Chapter 13 Bankruptcy Affect My Spouse’s Interest In Our Joint Property
No, because Chapter 13 trustees don’t sell property. However, the trustee will factor your interest in nonexempt property into your case , and it can drive up your monthly payment amount fast. Why? Because if you want to keep a nonexempt asset in Chapter 13, you must pay an amount equal to its value in the Chapter 13 repayment plan.
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Types Of Bankruptcy Spouses Can File
Chapter 7 bankruptcy allows for the liquidation of the debtors nonexempt property to pay off creditors. There are special requirements that must be met. Chapter 7 is typically preferred by debtors who are still current with their secured payments such as their mortgage and car loan but are overwhelmed with unsecured debts like credit cards or medical bills.
Chapter 13, also called a wage earners plan, provides for the adjustment of debts for an individual with a regular income. It enables them to develop a plan to repay all or part of their debt over a defined period of 3-5 years. Under Chapter 13, if mortgage payments remain current, the petitioner will not lose their home.
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Joint Debts Of The Marriage
If you and your spouse are jointly liable to a , the bankruptcy of one spouse does not relieve the other of paying the debt. Upon a bankruptcy, the creditor may look to the other spouse for payment, unless the bankruptcy case is under Chapter 13.
If the debt is a consumer debt to be paid 100% through the Chapter 13 plan, the co debtor is protected by the codebtor stay in §1301.
Generally, marriage alone doesnt make both spouses personally liable for a debt. Liability on contracts such as home loans and credit cards arises by agreement between the creditor and the debtor. Only persons who signed the loan or credit application are liable for the debt.
A joint tax return, however, makes both spouses liable for the total of the tax due.
If you have joint debts, you can expect the bankruptcy to be noted in some way on the credit record of the non filing spouse. There is uncertainty in the law at the moment as to whether it is proper to mention the bankruptcy of one debtor on the credit report of a debtor who is not in bankruptcy.
What Happens If Someone Files For A Bankruptcy In The Middle Of A Divorce
In most instances, divorce actions are not subject to the automatic stay which often comes out of bankruptcy filings. However, there can be situations where the automatic stay may impact the proceedings in a divorce. Depending on the circumstances, the bankruptcy could temporarily forestall progress in the divorce action.
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What To Do Next
Its always wise to consult with a bankruptcy attorney before filing. Lawyers have experience and understand the nuances of the rules and laws.
Consider the inheritance that may be coming to your spouse. Do you understand the rules regarding said money? An exemption could be filed for the inheritance, but only up to a certain amount. If you become eligible for an inheritance with six months of fling, that money could become part of the bankruptcy estate. If it sounds overwhelming, it might be. And it explains the importance of consulting and considering an attorney.
Remember that the first meeting typically is free use that to your advantage to gain some insight and understanding. A nonprofit credit counselor who can assess your financial situation may even be able to help before filing as well. Take advantage of any and all help.
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How One Spouses Bankruptcycan Affect The Other Spouse
So, how does the bankruptcy ofone spouse affect the other? In short, it depends on how you own your assetsand whether both spouses are in debt. For instance, if you file for Chapter 7bankruptcy, any property that you and your spouse own togethersuch as anyvehicles or real estatewill become part of the bankruptcy estate. These assetscan be liquidated to pay down debts. If you hold debts jointly and only onespouse files, only the filing spouses debts will be discharged, which means thenon-filing spouse will still have to pay.
One advantage of singlebankruptcy filing for married couples is that only one spouses credit will bedamaged. This is an important fact if you and your spouse need to make a largepurchase in the future.
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I Have A Lot Of Debt Should I File For Bankruptcy Now Or Wait Until I Get Married
Many clients find it desirable to start a new marriage with a clean bill of health from their debt. Marriage does not, by itself, create co-liability on existing loans, but it may make for more cohesive financial arrangements if both partners are entering into a marital relationship with balance on their debt obligations.
Can One Spouse File For Bankruptcy
When married couples are in need of debt relief, there are many different approaches they can take to get it. When the possibility of filing for bankruptcy is considered, questions frequently arise about the best way to go about it:
- Should just one spouse file?
- Can we file jointly?
- Is there a downside if just one of us files?
These are all extremely important questions that should be fully explored before any decisions are made, but getting answers can sometimes be a challenge. The assistance of a reputable bankruptcy lawyer can ensure that you get the honest answers and information you need to make a sound decision.
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Discuss Your Case With A Dedicated Alabama Bankruptcy Attorney
I am attorney Brent W. Davis. I have represented individual spouses and married couples in single and joint Chapter 7 and Chapter 13 filings across Alabama and the Birmingham area. I invite you to schedule a free, in-person consultation at my Birmingham office to discuss your debt relief options. My regular business hours are 7:30 a.m. to 6 p.m., Monday through Friday. Free parking is available. You can reach me by phone at 989-1919 . You can also contact me via e-mail.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
Most Common Questions
Other Factors To Consider When Deciding To File Separately
Every financial situation is unique, and there may be factors that contribute to filing without the spouse. A spouse may wish to protect a good credit rating, or a spouse may not have been part of the debt that led to bankruptcy. Just like people, marriages are unique and many factors should be weighed when deciding the best way to approach bankruptcy.
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File For Bankruptcy In Florida Without Your Spouse
If you are married and are considering filing for bankruptcy on your own the form you choose is important. You can file for both Chapter 7 and Chapter 13 if you meet the criteria. The one that is best for you depends on a few different things. In both cases, the courts consider both spouses income. In Chapter 7, in which debtors liquidate assets to pay off debts, if both incomes exceed the income level set by law, you may not qualify for this type of bankruptcy.
Alternatively, Chapter 13 may offer debt relief for you or your spouse. In this type of debt relief, a trustee sets up a monthly payment plan to pay down your or your spouses debts. The amount of the payment depends on both spouses incomes.
What Is The Effect On The Automatic Stay When Only One Spouse Files
The automatic stay protects you from creditors as soon as your bankruptcy case is filed. It stops almost every legal action, including a garnishment, foreclosure, repossession, and any debt collection lawsuit.
When you file for Chapter 7 bankruptcy, the automatic stay only applies to you. If you file without your spouse, theyâre not protected. If you file a Chapter 13 bankruptcy, there is a co-debtor stay, which protects anyone else listed on your debts.
In a community property state, the automatic stay extends to the community property of married couples. This generally means that the non filing spouseâs wages canât be garnished for a community debt.
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Can I File Bankruptcy Without My Spouse Knowing
Yes, although for the reasons discussed herein and the significant emotional impact that bankruptcy can have on your life, as well as the practical implications of its effects on joint property, it is not generally recommended to keep a bankruptcy filing a secret from your spouse.
Additionally, even though it is legally possible to file a bankruptcy case without your spouse, you will need to include certain information about your spouse on the bankruptcy forms, which ask for household income, marital assets, life insurance policies and beneficiary information, and information about whether debts are independent or joint.
