Filing Joint vs. Separate In Bankruptcy

When considering filing for bankruptcy, many married couples are stumped by the choice to file together or separately.  The best choice varies by couple and can be influenced by factors such as how much community debt is involved, whether the property is held jointly and how much of the debt was accumulated by a single party or before marriage.

Filing Together

Filing for bankruptcy together will eliminate the separate debts accumulated by either spouse by considering them to be a joint debt. When this happens, one spouse may be left holding the majority of the debt burden  in a Chapter 13 case; assuming the other spouse has less income. Assets will also be considered joint and there is no division of assets in a jointly filed bankruptcy, which can be problematic down the road if the couple separates.

Filing Separately

Filing for bankruptcy separately treats the debt liabilities individually. In other words, each spouse is held accountable for the debts they (a) accumulated before they were married and (b) acquired while married on their own accounts. If one spouse is having trouble paying debts that were acquired prior to the marriage, filing separately would be a better option in order to protect the non-filing spouse from any credit damage.

Filing separately can be problematic for joint accounts, where both parties have a contractual agreement for liability over the account. In such a case, the bankruptcy court must determine which spouse will be held liable for the debt.  More complications arise when only one spouse files for bankruptcy separately from the other, leaving the non-filing spouse responsible for the jointly held debt.