If you are a married couple, you can choose to file for bankruptcy jointly or individually. Whether it is in your best interest to file a joint or individual bankruptcy depends on:
- the amount of property you own
- whether you have joint debts, and
- the exemption laws of your state.
Individual Bankruptcy Filing
Just because you are married doesn’t mean that you must file for bankruptcy together. Below, we discuss the benefits and drawbacks of one spouse filing an individual bankruptcy.
If only one spouse has debt, that spouse can file for bankruptcy individually to discharge his or her own obligations. An individual bankruptcy allows one spouse to wipe out his or her debts without negatively affecting the other spouse’s credit. Also, if your state doesn’t allow you to double your exemptions in a joint petition, you may be able to protect more of your property by filing two individual bankruptcies. (Learn more about exemptions and the role they play in bankruptcy in our Bankrutpcy Exemptions topic area.)
However, keep in mind that if you live in a community property state, all community (marital) assets are considered property of the bankruptcy estate regardless of who is on title even if only one spouse files.
To learn more, see What Happens to Jointly Owned Property in an Individual Bankruptcy?
If both spouses need to file for bankruptcy relief, filing two individual cases will result in higher court costs and attorney fees. Further, in most cases, a bankruptcy filing by one spouse doesn’t offer any protection to the nonfiling spouse from his or her creditors. But there are exceptions.
If you have joint debts, the nonfiling spouse will be protected by the codebtor stay in Chapter 13 bankruptcy. Also, in community property states, if a joint debt is discharged by one spouse, that creditor can’t go after any community property to satisfy the nonfiling spouse’s obligation.
Joint Bankruptcy Filing
Bankruptcy law allows married couples to file a single joint bankruptcy petition together. There are both benefits and drawbacks to a joint filing.
Court filing fees for individual and joint bankruptcies are the same. In addition, if you wish to hire a bankruptcy lawyer, attorney fees will typically be much lower for a joint filing than two individual bankruptcies. This means that filing a joint petition can save you a lot of money over filing two individual cases.
Further, a joint bankruptcy is more convenient and efficient because it allows married couples to complete only one petition, attend mandatory hearings together, and discharge all of their debts through a single bankruptcy.
Some states don’t allow married couples to double their exemptions in a joint bankruptcy. This means that depending on where you live, you may not be able to protect as much property if you file a joint bankruptcy. In addition, if one spouse owns a lot of nonexempt separate property, it may not make sense to file jointly and put his or her assets at risk.