Married couples often file joint bankruptcy petitions. In many cases it makes perfect sense for both spouses to liquidate (Chapter 7 bankruptcy) or reorganize (Chapter 13 bankruptcy) their debts. However, it is possible for only one spouse to declare bankruptcy and under certain circumstances, it is in the couple’s best interests to do so.
One spouse’s debt does not automatically become a legal obligation of the other. Only debts signed for by both spouses (or by one spouse as a guarantor for the other) are joint debts. If one spouse discharges a joint debt in bankruptcy, only that spouse is relieved of the obligation. The other spouse is still required to pay.
When the majority of the debts are individually incurred by one spouse, it is often better that only the indebted partner file for bankruptcy. In most instances, the bankruptcy will have little effect on the non-debtor spouse. Staying out of the bankruptcy will preserve that spouse’s credit rating, which means he or she may still be able to obtain loans that can benefit the family. Avoiding a poor credit rating may also be important to obtaining employment in certain fields that require security clearances.
Single filing may also be preferable when a spouse has significant unprotected assets. In a joint bankruptcy, both spouses’ assets are subject to being sold to repay creditors. Bankruptcy law allows debtors to exempt some of their assets, but even making maximum use of exemptions may not significantly protect the spouse’s property. It is often beneficial for the spouse to stay out of the case to keep that property intact.
Single filing can also be the better choice if there is an issue with the means test, which determines whether a debtor’s income makes him or her ineligible to file for Chapter 7. If the spouses’ income puts the couple over the means test income limit, it might make sense for the debtor spouse to file Chapter 7 individually.
A downside to an individual filing is that the non-debtor spouse remains fully liable for the couple’s joint debts, including mortgages. In actuality, despite one spouse’s legal discharge, the couple at large is still burdened with these payments, which may be a substantial part of their debt situation. A qualified chapter 7 bankruptcy attorney can help you decide whether a joint filing will achieve a better result overall.
Jeff Field & Associates concentrates its practice on bankruptcy and debt relief. Our firm serves many individuals and businesses in Rome, Atlanta, Gainesville, Newnan, Macon and Athens, Georgia. If you have a personal or business debt problem, contact us online or call 404-381-1278 for an initial consultation.
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