Bankruptcy Filing Options for Married Couples

Married couples can file for bankruptcy jointly or individually. Learn which option is best for you.

Married couples can choose whether to file for bankruptcy together (jointly) or individually. You'll determine which will be best for you by taking into account the following:

  • the value and type of property you own together and separately
  • the exemption laws of your state that determine which assets you can keep
  • the bills you owe together (joint debts) and separately
  • the credit score of each spouse
  • your combined income, and
  • whether marital adjustment deductions will help one spouse qualify for an individual filing.

Because the bankruptcy type you choose will also affect your decision-making process, be sure to learn about the differences between Chapter 7 and 13.

Joint Bankruptcy Filings for Married Couples

Bankruptcy law allows married couples to file a bankruptcy petition together (a "joint" petition). While it makes sense for most couples to file jointly, it isn't the best route for everyone.

Benefits

Both spouses can wipe out qualifying debt in one fell swoop when filing together, including debts they incurred as a married couple and individual bills they're each solely responsible for paying. But that's not all. Filing a joint petition can save you money, too.

The court filing fees are the same for individual and joint bankruptcy cases. But if you file two individual cases, you’ll pay the filing fee twice—$670 for two individual Chapter 7 cases instead of $335 for one joint case (as of July 2020). And most bankruptcy lawyers charge the same amount for couples filing together as they do for one individual case—or sometimes just a few hundred dollars more.

Also, filing jointly is more convenient and efficient. Married couples complete only one petition, which is significant considering that the average petition is about fifty pages in length. Joint filers also attend the 341 meeting of creditors together—the mandatory hearing all debtors must attend—and discharge qualifying debts through a single bankruptcy discharge order. Plus, it's more straightforward for the bankruptcy court and trustee to resolve property issues, which can eliminate time-consuming hearings, thereby streamlining the process.

Drawbacks

Some states don't allow married couples to double property exemptionsin a joint bankruptcy—the laws that let you protect assets you'll need to work and live. Depending on your state's laws, you might not be able to protect as much property if you file together. Also, if one spouse owns a lot of separate nonexempt property—property a filer can't protect with an exemption—it will be lost in Chapter 7 or need to be paid for through a Chapter 13 repayment plan. It might not make sense to file jointly and put those assets at risk.

The same logic applies if most debts are in the name of only one spouse. Filing a joint bankruptcy will negatively affect that spouse's credit rating. It's often better to preserve that spouse's good credit so that it's available after the bankruptcy case.

Individual Bankruptcy Filings When Married

Married people don't have to file for bankruptcy together, and sometimes it makes sense for only one spouse to file.

Benefits

Sometimes people with extremely different financial situations get married before realizing that significant debt problems exist. For instance, one spouse might have an excellent credit rating and have acquired substantial property before marriage. By contrast, the other might have accumulated considerable debt, a 450 credit score, and a storage space of crafting supplies (which can be quite valuable and not likely protected in bankruptcy). In many cases, individual bankruptcy will wipe out the indebted spouse's qualifying debt without negatively affecting the other spouse's credit or property.

Other benefits exist, too. For instance, some states don't allow joint filers to double exemption amounts in a joint petition. In those states, you might be able to protect more property by filing two individual bankruptcies. However, keep in mind that if you live in a community property state, all community (marital) assets are property of the bankruptcy estate, no matter who is on the title even when only one spouse files for bankruptcy.

To learn more, see What Happens to Jointly Owned Property in an Individual Bankruptcy?

Drawbacks

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 won't offer any protection to the non-filing spouse from creditors. But there are exceptions.

If you have joint debts, the non-filing spouse will be protected by the codebtor stay in Chapter 13 bankruptcy. Also, in community property states, if one spouse discharges a joint debt, a creditor can't go after any community property to satisfy the non-filing spouse's obligation. Keep in mind that this rule is strictly construed and won't apply to other situations, such as a debt that one spouse must pay under a marital settlement agreement that's in the other spouse's name. (Assessing responsibility this way isn't wise if it's likely one spouse will file for bankruptcy after divorce—consult with a family law attorney knowledgeable in bankruptcy law.)

A couple that makes too much money to qualify for Chapter 7 won't be able to get around a Chapter 7 means test failure (the test you must pass to be eligible for a Chapter 7 discharge) by having one spouse file an individual Chapter 7 case. If you're experiencing this common problem, the rest of this article is for you—keep reading.

Married Individuals Must Include the Non-filing Spouse's Income

People tend to believe that they can get around a Chapter 7 qualification issue if only one spouse files—but it isn't the case. Most people don't realize that an individual filing won't solve an income-related means test problem. Why? They don't realize that a married filer must include both spouses' incomes when filing for individual bankruptcy.

Because you must include the non-filing spouse's income on the means test if you share a household with your non-filing spouse, if your spouse has a significant amount of income, you will typically have a harder time qualifying for Chapter 7 bankruptcy.

However, that's not the end of the analysis.

The Marital Adjustment Can Help Married Individuals Qualify for Chapter 7

The means test takes into account the fact that perhaps not all of your spouse's income is used to pay household expenses. It allows you, in certain circumstances, to deduct the portion of a non-filing spouse's income that goes to another household or is used for the non-filing spouse's separate debts.

Marital Adjustment Deductions

Bankruptcy courts have differing views on what expenses the marital adjustment deduction covers. The following are examples of the types of expenses that might qualify as marital adjustment deductions:

  • your non-filing spouse's payroll deductions such as taxes, insurance, union dues, and retirement contributions
  • payments your non-filing spouse makes on his or her 401(k) loans
  • your non-filing spouse's payment responsibility for credit cards, student loans, or other separate individual debts
  • car loan payments and other expenses such as gas, maintenance, and insurance for your non-filing spouse's car
  • alimony, child support, or other support obligations of your non-filing spouse from another marriage or relationship
  • payments on attorneys' fees incurred by your non-filing spouse
  • mortgage, home insurance, and other expenses for real property owned by your non-filing spouse alone
  • your non-filing spouse's cell phone expenses, and
  • gym membership, entertainment, and other recreational costs of your non-filing spouse (keep in mind that courts differ on the expenses allowed for recreation and entertainment).

Be Prepared to Document Marital Adjustment Deductions

If you are claiming many marital adjustment deductions and they make the difference between passing or failing the means test, your bankruptcy trustee will want to see documentation showing that your non-filing spouse pays those expenses. Be prepared to provide documentation to support any marital adjustment deductions you claim on the means test.

Learn about other expenses that can help you pass the means test.

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