Spouses don’t always file for bankruptcy together—especially when one spouse has a good credit rating to preserve. Keeping it will often allow the couple to make a large credit purchase later if needed.
However, downsides exist. The debtor must include the non-filing spouse’s income in most cases, and the non-filing spouse will typically remain responsible for any joint debts. Read on to learn more about the effect of bankruptcy on your non-filing spouse.
If you’d like more filing considerations, see Should I File for Bankruptcy?
The income rules that apply to non-filing spouses differ slightly in Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Many people would prefer filing for Chapter 7, when possible. Debtors quickly erase qualifying debt without paying into a repayment plan. However, many people have a difficult time meeting the income requirements and passing the Chapter 7 means test.
A couple whose combined income is too high might wonder whether they can fix the issue by having only one spouse file. While it would seem to make sense, generally, one spouse filing alone won’t help a marital qualification problem. Here’s why.
When completing the means test, a married couple living together must declare the income of both spouses, even when only one spouse files for bankruptcy. And most couples won’t be able to use one of three exceptions that can reduce a non-filing spouse’s income, or omit it entirely.
Chapter 13 Bankruptcy
A Chapter 13 debtor must pay into a three- to five-year repayment plan, so it takes longer to complete (although there are many good reasons to file for Chapter 13, even if qualified for Chapter 7). In the plan, unsecured creditors are entitled to receive their share of the couple’s monthly disposable income, or the value of the nonexempt property, whichever is greater.
The means test rules in Chapter 7 apply in much the same way in Chapter 13, but there are some differences.
Find out about the steps involved in a Chapter 13 bankruptcy.
Filing bankruptcy discharges the debt of the filer only—not a non-filing party. If a couple has joint debt, but only one spouse files for bankruptcy, the non-filing spouse will remain responsible for the obligation.
Protections for non-filing spouses exist, however, but again, don't always apply.
Learn more about joint debt in bankruptcy.
Any property titled or deeded to the non-filing spouse exclusively won’t be included in the debtor’s petition. However, in a community property state, all property acquired after the marriage will be included in the estate. Find out more about the assets of the bankruptcy estate.
Sometimes the interests of spouses don’t align. For instance, a debtor’s separate property becomes part of the bankruptcy estate. If the assets couldn’t be protected with a bankruptcy exemption, the property could be used to pay the other spouse’s debt—a result easily avoided by not filing a joint bankruptcy.
Also, spouses might be tempted to streamline a divorce by filing together and wiping out debt. While it could be an excellent way to go, their interests would likely be better served by filing individual matters using different lawyers, or at least by consulting with separate counsel before filing jointly.
This article provides an overview only. Because laws vary by state and each case is unique, it’s essential to consult with a local bankruptcy attorney to learn how state law applies to your matter.