When filing for bankruptcy as a married couple, there are numerous factors to consider. Bankruptcy laws and exemptions vary by state, and filing for bankruptcy together or separate could be affected by these differences. There are different benefits when filing together or filing separately, and couples considering bankruptcy should contact a qualified bankruptcy attorney to help them make an informed decision.
It is no secret that filing for bankruptcy does show up on your credit report after your bankruptcy case has been discharged by the court. However, it is often far worse to continue to default on your debts for long periods of time. Having a negative credit standing, due to unpaid debts, can impact your credit rating and impede your ability to receive credit in the future.
Couples often choose to file for bankruptcy separately to avoid having the bankruptcy posted to both people’s credit history. The spouse that files for bankruptcy, and receives a discharge of debt, will have their personal debt and their share of community debts eliminated. There are a few problems with filing separately or having only one spouse file for bankruptcy. If the couple has a joint credit account and one spouse receives a discharge of the debt through bankruptcy, the creditor can still demand payment of the debt from the non-filing spouse.
Filing separately can be a better option when one spouse has the majority of the debt as a personal, not shared, debt. It may be best to file for bankruptcy separately if a spouse has a large debt that was accrued prior to marriage. Similarly, if a couple is legally separated and has legally divided property, filing for bankruptcy separately may better protect each individual’s credit and assets.
Couples filing for bankrtupcy together can have all of the separate and jointly-held debts eliminated through a bankruptcy discharge. Filing together protects both spouses from credit collections and further payments on their debt. Property that was acquired during the marriage is considered “community property” and is protected when filing for bankruptcy together, whereas filing separately cannot guarantee this property is protected during bankruptcy.
When filing for bankruptcy together, consider whether a combined household income would prevent you from receiving a bankruptcy discharge. When filing Chapter 7 bankruptcy, a means test must be conducted to determine a financial hardship that qualifies for the bankruptcy becoming a necessity. Having a combined household income may determine there is no necessity for bankruptcy and prevent you from having debts discharged in Chapter 7 bankruptcy. In this instance, a couple is more likely to receive a Chapter 13 bankruptcy, where a debt repayment plan is negotiated with creditor for debts to be repaid over a few years.