Filing Bankruptcy Without Your Spouse
When filing bankruptcy, many married couples file a joint petition, a kind of bankruptcy petition where both the husband and wife are full participants. However, a joint filing is not required, and the husband or the wife can individually file a bankruptcy. When can an individual spouse filing be useful? What are some reasons only one spouse files? Read on for more about one-spouse bankruptcy.
Individual Bankruptcy - Individual Debt Liability
The basic premise is that each person who files bankruptcy gets available bankruptcy relief for his or her own debts. A husband's bankruptcy doesn't get rid of the wife's debts or vice-versa. In the case of joint debt, where two or more people are obligated to repay a debt, a bankruptcy discharge of one person would only get rid that person's obligation. The non-filing joint borrowers remain responsible for the debt.
Can One Spouse Stop Foreclosure?
Chapter 13 bankruptcy is frequently used to stop a foreclosure and catch-up the missed payments on a home mortgage (a so-called cure and maintain chapter 13). One spouse filing alone can also propose a plan curing a mortgage default where there is co-ownership or co-borrowing.
What Happens to the Non-filing Spouse?
In chapter 13, a co-debtor stay goes into effect when the case is filed. This co-debtor stay prevents the creditor from collecting a non-business loan from a co-borrower while the chapter 13 case is proceeding. Notably, this allows the bankruptcy filer to propose to pay the joint debt in full during the plan, permanently shielding the other borrower from collection. As an example, if a married couple had a joint credit card, the spouse who filed could prevent the credit card lender from suing the non-filing spouse to collect the debt.
A simple way to look at it is that a chapter 13 of one spouse often allows adjustment of repayment timing of joint debts, but not eliminating joint liability of joint debts.
Why an Individual Filing?
There's any number of reasons an individual spouse might file bankruptcy alone. In some cases, these might include:
- Non-Cooperating Spouse. A non-cooperating spouse is a classic source of an individual case. For a joint case, both spouses must consent, and leaving an individual case the only option in the case of a non-participating spouse.
- Spousal debt structure. If the problem debt is in the name of one spouse, just that spouse filing bankruptcy is all that would be needed. It may be that bankruptcy for one spouse provides adequate relief on the household budget.
- Individual Assets. If one spouse owns valuable property that would have to be sold in a chapter 7 bankruptcy, it may be desirable for that spouse not file bankruptcy. By not filing, the spouse with the asset avoids loosing the value of that asset to creditors. Occasionally, the relief obtained by the spouse without the asset filing bankruptcy is adequate for the couple's purposes. Inherited property that is illiquid (can't be easily sold) is a classic cause of one spouse having extra assets.
- Transfers by one spouse. If one spouse has engaged in problematic transfers pre-petition, the benefit of only the other spouse filing is similar to when one spouse has valuable assets.
- Means test problems. During a joint filing, all income of both spouses is considered for means testing purposes. In an individual case, where a debtor is married, the non-filing spouse's income is only considered to the extent that it is contributed to the household expenses of the debtor or debtor's dependents. While highly fact-dependant, this distinction can result in situations where a single spouse can "pass" the means test while both spouses together would "fail" it.
The question of whether either or both spouses should file is best considered with careful advice from an attorney familiar with the full facts of your situation.
Filing Two Separate Bankruptcies
It would be unusual for a husband and wife to simultaneously file two separate bankruptcy cases. There is significant administrative convenience associated with a joint case, particularly when debts and expenses are intertwined. A single case will generally have fewer attorneys fees, filing fees, and possible trustee charges. The clearest case for separate bankruptcies is when the husband and wife cannot agree on how proceed. Most separate bankruptcies arise not out of simultaneous filings, but from one spouse filing months or years after the first.