Grow Your Legal Practice. Meet the Editors. Filing Considerations for Married Couples. Filing for bankruptcy without your spouse might be a good option if you have lots of debts and you'd like to preserve your spouse's credit. Question I have debts from a business. Including Your Spouse's Income in Bankruptcy If you want to take care of the debt by filing for bankruptcy, you'll have to include your wife's income if you share the same household—even if you file alone.
How to Reduce a Nonfiling Spouse's Income in Bankruptcy Although you must include your nonfiling spouse's income, you might be able to take deductions and pass the means test or lower your disposable income.
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To learn more about what to consider before filing for bankruptcy, see our topic area on Should I File for Bankruptcy? If you file for bankruptcy without your spouse, it will typically not affect your spouse's credit. But if you have joint debts, the fact that you filed for bankruptcy to discharge the debt may appear on your spouse's credit report.
In addition, your creditors will receive notice of your bankruptcy and can usually still come after your spouse to collect any joint debts. In general, your bankruptcy will not affect any separate property that your spouse owns individually.
But if you have jointly owned assets, how they will be treated in bankruptcy depends on whether you live in a common law or community property state. If you live in a common law property state, your individual assets and your interest in any property you own jointly with your spouse typically half unless otherwise noted are considered part of your bankruptcy estate. The property your spouse owns in his or her name alone is normally not at risk. But keep in mind that in Chapter 7 bankruptcy , the appointed bankruptcy trustee may be able to sell the entire jointly owned asset if you can't exempt the value of your interest and the property can't be divided.
If the trustee sells the property, he or she will pay your spouse the value of her interest and use your portion of the nonexempt proceeds to pay back your creditors. In community property states , almost all assets acquired and income earned by either spouse during the marriage are considered community property. Because both spouses own community property jointly and equally, all of it is considered property of your bankruptcy estate and may be used to satisfy your debts.
This means that if most of your joint assets are community property, your bankruptcy can have a significant impact on your spouse. For more detailed information on what happens to joint property in bankruptcy, see How Is Joint Property Treated in Bankruptcy?
When you file for bankruptcy, it eliminates only your personal liability for debts that are discharged in your case. Your individual bankruptcy doesn't wipe out your spouse's obligation to pay back his or her own debts or any joint debts you have together.
Posted by: Rob Cohen. Many have the mistaken impression that because they are married, their spouse is automatically responsible for their debts. This is not the case. Both spouses are on the hook only if the debt was incurred in the name of both partners. If the debts are held jointly, the non-filing wife will still owe even after one spouse has filed bankruptcy.
A non-filing spouse should not have their credit damaged as a result of their husband or wife filing for bankruptcy. Beyond just debt, another issue for married couples to consider when evaluating bankruptcy is how assets are held. This could be an important factor depending on the value of the asset, because Chapter 7 is technically a liquidation.
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