What Happens When a Spouse Files for Bankruptcy?

When one spouse files for bankruptcy, many questions can arise! Marriage and partnership go hand in hand. What affects one spouse generally affects the other in one way or another. It is only natural to wonder what will happen to you and your credit when your spouse is forced to file bankruptcy. This can be a very tricky situation, especially if it is a bankruptcy during divorce. Before any paperwork is filed, we recommend that husband and wife take the time to sit down and discuss this with a local bankruptcy attorney.

Can One Spouse File for Bankruptcy Alone?

Each state will have its own specific bankruptcy laws, (each state has its own “exemptions” for property) making it even more important to hire a local bankruptcy attorney. Adding to the complications is the fact that even if only one spouse is filing in a community property state, the bankruptcy takes all of the couple’s possessions into account, even if only one of them is listed as the holder of the asset.

For common law property states, there are some notable differences. For instance, if there is only a single spouse on the deed of the home, that individual is considered the sole owner of the home. If both names are on the deed, it is considered joint ownership, with each holding an equal portion claim. Only the portion of the property owned by the individual filing as well as all sole owned property would be included in the petition.

The non-filing spouse would retain complete ownership of his or her portion of the joint property as well as all property he or she personally owned, even though their spouse is filing for bankruptcy. This offers less risk for those in common law states as opposed to a couple in a community property state. In community property states, the non-filing spouse should check with his or her attorney to ensure that he or she qualifies for exempt status.

Regardless if the couple is located in a common law or community property state, only the filing spouse will be relieved of joint debt owed. For instance, if the couple has a credit card jointly, the non-filing spouse is still required to pay off the debt. All joint and individual debt will now fall solely on the non-filing spouse.

One notable benefit in community property states for the non-filing spouse is the phantom discharge. All community property involved in the bankruptcy that is eligible will have the debt discharged. The simple translation is that this property is now considered off limits to creditors. This benefit remains as long as the marriage is not dissolved. To make sure your rights are protected, speak to us for the free bankruptcy help and advice you deserve.