How Will Filing for Bankruptcy Affect My Spouse?
Much like getting a shot or going to the dentist, declaring bankruptcy is something most Americans fear and dread. Those concerns only increase when there is a possibility that one’s spouse will be affected by their decision to file for bankruptcy.
In most cases, if you file individually, your spouse will not be impacted by your bankruptcy filing. However, this does not mean you should file individually. If your spouse would also benefit from filing for bankruptcy, there are probably few good reasons not to file a joint case. Furthermore, even if your spouse is not filing, their income must be included in all pertinent calculations. This means that while your spouse might not be affected by your decision to file for bankruptcy, your case will be impacted by your spouse. If you file together, both of your credit scores will be impacted. But, if you file individually, your spouse’s credit will be unaffected.
At Young, Marr, Mallis & Associates, our experienced Philadelphia bankruptcy lawyers can discuss your case for free when you call (609) 755-3115 or (215) 701-6519 today.
Does My Spouse Have to File for Bankruptcy with Me?
Filing for bankruptcy is an important financial decision that deserves ample consideration. The concern about declaring bankruptcy might worsen, especially if you are married and are worried that your decision to enter into bankruptcy could negatively impact your spouse.
The most obvious and immediate question that springs to mind when considering bankruptcy is probably, “Does my spouse have to file for bankruptcy, too?” Well, you can breathe easy, because the short answer is no, they do not have to. In fact, it may be more advantageous to you to file separately. Alternately, it may be more advantageous to you to file jointly. Whether or not you and your spouse file for bankruptcy together will depend on your unique financial situation and how and where the debt has been incurred. Whether you opt to file for Chapter 7 or Chapter 13 is a major variable that will affect what’s best for your household.
Should My Spouse File for Bankruptcy with Me?
Deciding to file for bankruptcy with your spouse or independently is a big decision. Which path you take might depend on whether or not you and your spouse have shared debts or you want to address both of your individual debts through the same bankruptcy proceedings.
Do You Have Shared Debts?
The type of debt you have will often influence your decision to file jointly or as an individual. If you and your spouse share credit card debt, then it may be advisable for you to file together. When credit card debt is discharged, it only applies to the person who filed for bankruptcy. Eliminating your obligation to pay back $80,000 of credit card debt does not help your family’s situation if your spouse is still legally obligated to pay back the debt.
However, if both you and your spouse are listed on a mortgage that is in default, you are not required to file a joint Chapter 13 to save your home. In many cases, if there is no other shared debt, our Pennsylvania bankruptcy attorneys will advise that only one spouse files the case so that the other spouse’s credit is unaffected.
Save Attorney and Bankruptcy Fees
In addition to looking at your shared debt, you should also consider your spouse’s personal debt. If both you and your spouse have a significant amount of individual debt, even if it is not shared, you might want to consider filing a joint bankruptcy. There is rarely any benefit to you filing for bankruptcy and then your spouse filing in the next year or two. By filing a joint bankruptcy, you and your spouse could save a significant amount of money in filing and attorney fees. If you file jointly, there will be one fee instead of two; one set of documents instead of two; one hearing instead of two. This saves money, and boosts efficiency.
Do You Have Expensive Assets?
When you file for bankruptcy, your personal possessions become the bankruptcy estate. Depending on what chapter of bankruptcy you file, you might have to sell your property or pay your creditors the fair market value of your assets. Fortunately, you are permitted to protect your property through federal or state bankruptcy exemptions. When you file jointly, your federal exemptions double and, if you choose the state exemptions, you could take advantage of the “tenants by the entirety” exemption. Choosing federal or state exemptions is a vital step in the bankruptcy process, which is why it is important to thoroughly examine your assets to determine which exemptions would be most beneficial to you and your spouse.
Will My Spouse’s Income Impact My Bankruptcy?
Some potential bankruptcy filers do not want to include their spouse because they believe they make too much money. Unfortunately, whether you file individually or jointly, your spouse’s income will be included in the means test calculation and their average monthly income will be listed in your bankruptcy schedules.
While your spouse will not be included in your bankruptcy, they will have to supply six months of paystubs or other proof of income. Their income contributes to the household income, which is part of what determines the chapter of bankruptcy a filer is eligible for. Too high of a household income means that a debtor will have to file Chapter 13, which takes longer to complete.
There are marital deductions that could be included to reduce your total household income. However, this does not mean you can deduct all of your spouse’s expenses. If an expense is for the household’s good, such as food or the payment on a family vehicle, you are not permitted to deduct the expense. Some common deductions that might be permitted include 401(k) loan repayments (if the loan was not used the good of the household), student loan payments, child support payments for a child that does not reside in the household, alimony payments for an ex-spouse, and personal gym or club memberships.
Marital deductions could be the difference between qualifying for a Chapter 7 bankruptcy or having to file a Chapter 13. Our Bethlehem bankruptcy lawyers will carefully review your non-filing spouse’s expenses to determine if any would be eligible to be deducted under the marital deductions.
Reasons to File an Individual Bankruptcy without Your Spouse
There are times when filing an individual bankruptcy will protect your spouse from financial harm. However, every situation is unique. Our attorneys will help you determine if you should file for bankruptcy without your spouse based on certain factors, such as if they have non-dischargeable debt, you were recently married, or you want to ensure they are not negatively impacted by bankruptcy.
Your Spouse Has Non-Dischargeable Debt
The benefit of filing for bankruptcy together is clearing both of your financial slates. However, if your spouse only has non-dischargeable debt, such as taxes, alimony, or student loans, it might not be beneficial to file a joint case. Non-dischargeable debts do not go away during bankruptcy and, if you are listed as your spouse’s co-debtor, both of you might be responsible for repaying those debts and both of you may see your credit affected as a result.
You Were Recently Married
If you were recently married, it is unlikely that you share a significant amount of debt with your spouse. Most newlyweds want to start their marriage off in the best possible way. By discharging old debt that you incurred while still single, you could start your marriage on a firm financial foundation. The primary type of debt most young people have is credit card debt. This type of debt is dischargeable under bankruptcy. If both you and your new spouse have credit card debt, you can both file individually to get it discharged. If that is the only debt you have, you will not have to make additional payments. Furthermore, if you are still relatively young, filing for bankruptcy before you are married or just after can give you time to regain your financial health and improve your credit. Young people also often have student loan debt which, in some cases, can be discharagble in bankruptcy. If it is not in your case, it may be best for you and your spouse to file individually.
Leaving Your Spouse to Make Necessary Significant Purchases
If your spouse does not have a significant amount of debt, it might be better to file for bankruptcy by yourself. Even though your spouse will be left with debt, they might still have the ability to purchase larger items on credit or apply for a personal loan that would not be available if they had a bankruptcy on their credit history.
Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy for Married Couples
There is a significant difference, when it comes to how your spouse will be affected, between filing for debt under Chapter 7 versus Chapter 13. Under Chapter 7, filing for bankruptcy will eliminate the debt of the person filing (with some exceptions, such as student loans and income taxes). What it will not do is eliminate the debt, if any is held, of the non-filing spouse. That means that creditors can therefore continue to pursue the non-filing spouse for any payments owed.
Chapter 13, on the other hand, works in a different way. If the bankruptcy plan addresses the debts held by both marriage partners (joint debt), the creditor cannot pursue the non-filing spouse during the period of time in which the bankruptcy is in effect. With Chapter 13, this period is generally in the range of three to five years. Chapter 7 bankruptcies are often resolved more quickly, in time frames closer to three to six months.
There are, however, additional concerns regarding bankruptcy that married couples might have. Chapter 7 requires asset liquidation if debts cited in bankruptcy are not dischargeable. If you have a spouse and a family, you might not be able to risk to possibility to certain assets, like your house or car. States typically offer liquidation exemptions to protect such assets.
How Will an Automatic Stay Affect My Spouse?
When a bankruptcy petition is filed, an automatic stay takes effect, prohibiting creditors from contacting debtors. Depending on whether you file jointly or independently, an automatic stay may or may not impact your spouse.
If you and your spouse declare bankruptcy as co-debtors, the automatic stay that goes into effect will prevent them from receiving any communications from lenders or creditors. If your spouse does not file for bankruptcy with you, they will not be protected if they have creditors of their own they need to repay. The automatic stay granted to you will not be extended to your spouse for an altogether separate financial matter.
That said, creditors should not contact your spouse in an attempt to reach you while an automatic stay is in place. This could be in violation of the automatic stay and should be reported to our attorneys immediately, as a violation could undermine any attempts of a creditor to discount your bankruptcy petition and request a total repayment of debts.
Even if you file independently, an automatic stay can give your spouse a sense of calm and relief, knowing that your home should no longer receive harassing calls or messages from creditors of any kind.
What if My Spouse Filed for Bankruptcy in the Past?
When lives, and bank accounts, come together in marriage, couples understandably assume that they adopt their spouse’s history, financial or otherwise. That, however, is not always the case, especially regarding bankruptcy.
Financial irresponsibility is penalized in that debtors cannot continuously file for bankruptcy. If they could, people could irresponsibly use credit cards, knowing that such debts would be discharged under bankruptcy. Because of that, there is a mandatory waiting period between bankruptcy filings. Usually, this is several years, depending on the bankruptcy chapter.
So, if your spouse filed for bankruptcy in the recent past, it is fair to think that you cannot address your own financial problems immediately afterward. Fortunately, if your spouse filed independently, their history of bankruptcy will not impact your ability to file. Nor will it affect your eligibility to benefit from an automatic stay, which is not always provided to those who have declared bankruptcy several times in the recent past.
Will Bankruptcy Affect Mine and My Spouse’s Credit Scores?
If you are concerned about bankruptcy affecting your spouse, it is understandable to also worry about the impact bankruptcy might have on your spouse’s credit score, even if you file individually.
Bankruptcy filed jointly affects both of your credit scores. Bankruptcy filed individually affects only your credit score. Keep in mind, however, that if you apply for loans together in the future, your damaged credit score is going to factor into your combined score. While getting married makes you one in many ways, you will always have your own credit score. If you file for bankruptcy independently, your spouse’s credit score will be unaffected. This might influence the decision of filing jointly or together. Since your spouse’s credit score will be unaffected, even if you jointly decide that declaring bankruptcy is a wise decision, they can continue to make purchases and be approved for loans that you might be denied because of the impact bankruptcy has had on your individual credit score.
Anyone that files for bankruptcy will see their credit score impacted for some time. If you file Chapter 7, the bankruptcy will remain on your credit report for up to ten years, whereas Chapter 13 will only stay on your credit report for seven years. Again, if your spouse is not listed as your co-debtor, your filing for bankruptcy will not affect their credit score.
Our Philadelphia + Bucks County Bankruptcy Lawyers Can Help
Call the Springfield bankruptcy attorneys at Young, Marr, Mallis & Associates at (609) 755-3115 or (215) 701-6519 to schedule a free analysis of your case.