In A Nutshell
1) Evaluate Your Joint Debt
2) Look At What Is Joint Property Versus Solely Owned Property – (Exemptions)
3) Consider Household Income
In More Detail
1) Joint Debt
When determining whether or not a spouse should file a joint bankruptcy or by himself/herself, we must analyze the couple’s debt situation. The following steps will assist:
- First, we need to determine which debts are in whose name(s). Are the debts solely in the husband’s name? Is the spouse a co-signer on the debt or an authorized user?
- Second, we have to look at the type of debt. Is the debt secured? Unsecured?
- Third, we must determine how much is owed on each of the debts.
- Fourth, we must know how the couple’s assets are titled. Individually or jointly?
After compiling this information, we look to see where things fall in accordance with the “Rules” below:
RULE 1: If unsecured debts (i.e. credit cards, personal loans, medical bills) are in both spouses’ names and all property is owned jointly by the couple, then both should file the bankruptcy. Bankruptcy will discharge the liability for a debt for only the person(s) who files the case. If only one spouse files the bankruptcy, then only that spouse’s liability will be wiped away. The non-filing spouse will still owe the debt. Another consequence in a Chapter 7 could be that the Trustee take and sell jointly owned property and use the proceeds to pay towards jointly owned debt. This will not occur if both spouses file and all property is exempt. ONE NOTE: if the amount of unsecured debt in both names is small and the real issue in your situation is secured debt (i.e. mortgage, car loan), then it could be advisable for only one spouse to file. This type of situation will likely result in you filing a Chapter 13 to deal with the secured debt. Your spouse can work something out with the small amount of unsecured creditors to pay them back if she/he is able.
RULE 2: If unsecured debts (i.e. credit cards, personal loans, medical bills) are in both spouses’ names and no property is jointly owned by the couple, then both spouses should file the bankruptcy. It would not be wise for only one spouse to file, leaving the non-filing spouse still liable. The household as a whole is not benefited by only one spouse filing. After analyzing your situation, I will be able to tell you which type of bankruptcy (Chapter 7 or Chapter 13) best meets the needs for you and your spouse jointly.
RULE 3: If you and your spouse are not jointly liable for unsecured debts and no property is jointly owned by the couple, then it will be your choice to file the bankruptcy jointly or only one spouse file. The answer to this riddle will depend on the amount of debt each owes (if one spouse only owes a little, then only the other should file); the value of property each owns (if one owns a large amount of property falling above the exemption limit, then it may be that only the other should file); and the goals of the couple (to make the household totally debt free or discharge the debt of one spouse while maintaining the good credit of the other).
RULE 4: If all of the couple’s debt is secured (or at least very little is unsecured) for which both are liable, then one or both can file a bankruptcy. This situation will likely result in a Chapter 13 to properly deal with the secured debt. One spouse can file a Chapter 13 and pay for the secured debt through his case. While the other spouse can remain out of the bankruptcy to assist the household by not being restricted under the rules of the Bankruptcy Code. On the other hand, it may be beneficial for both spouses to file the Chapter 13 if it means certain secured debts (i.e. car loan, furniture payment) can be paid a lesser amount or a lower interest rate. If only one spouse files, then these things cannot be done possibly making the bankruptcy payment higher.
2) Joint Property VS. Solely Owned Property – (Exemptions)
The next questions to answer when determining who within a couple should file a bankruptcy is: in whose name are all of the assets owned by the couple? Are the assets jointly owned or owned individually by one of the spouses?
The Law has set forth limits on the value of property you can own before your bankruptcy is affected. These “limits” established by the Law are called “Exemptions” and by “value” I am speaking of the “equity” you have in assets you own. Having assets valued over the exemption limits may limit the type of bankruptcy you are able to file. Because of the value of your things, you may be forced to file a Chapter 13 in order to keep everything you own. In the alternative, filing a Chapter 7 may require that some of your unexempt assets be sold and the proceeds divided between your unsecured creditors.
When spouses file a bankruptcy, then each spouse can exempt ½ of all assets that are jointly owned. For example: you and your spouse jointly own your home which has equity valued at $60,000. You and your spouse can each fully exempt your ½ interest ($30,000 each) in the property. Based on this alone, you and your spouse could file either a Chapter 7 or a Chapter 13.
If property is not jointly owned but rather is owned individually by one spouse, then only the owner of the property can exempt the property. For example: you own a car that is in your name only worth $10,000. You can use the vehicle exemption and the wildcard exemption to exempt a total of $8,500 of the equity in the vehicle. Your spouse cannot exempt any of the equity in the vehicle.
A better example of how this situation can affect the decision of whether to file a bankruptcy with or without your spouse is one that is more extreme. In fact, this example is one that I have witnessed in real life.
EXAMPLE: Husband and Wife jointly own their home and are not behind on their mortgage. Husband has $50,000 in unsecured debt in his name only. Wife has $40,000 in unsecured debt in her name only. Husband is able to exempt all of his interest in all of the property he owns individually or jointly with Wife. Wife is able to exempt all joint property BUT individually owns $30,000 in unexempt stock that she inherited when her father passed away. If Wife were to file a bankruptcy, then she would either have to pay $30,000 worth of her unsecured debt or sell the stock and use all of the proceeds to pay towards her debt. The couple decided that only Husband would file a Chapter 13. They saw the stock as an investment that had potential to increase in value and did not want to sell it. At the same time, including another $30,000 in their bankruptcy payment would make it unaffordable.
3) Household Income
RULE: If you are married and living with your spouse, then filing an individual bankruptcy does not result in the Law only considering your income when determining the type of bankruptcy you qualify to file.
When determining what options you have in bankruptcy (either Chapter 7 or Chapter 13), I have to analyze your household income. The Law is not concerned with only your income but also that of your spouse or anyone else living with you and with whom you share expenses.
Often it is true that one spouse makes more income than the other. But, both spouses’ income will be considered when determining what type of bankruptcy can be filed by one spouse individually or both spouses jointly.
It is very important to decide if you should file bankruptcy individually or jointly as a couple. If you and/or your spouse are contemplating bankruptcy, then fill out online intake form and let me analyze your situation to assist you in what is best for your family.