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. When it comes to filing — particularly because those who do, generally never have before — a storm of questions swirls in the mind. At the forefront of these questions, one may wonder, “What will happen to my spouse? How will this affect them?”
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.
At Young, Marr, Mallis & Associates, our experienced Philadelphia bankruptcy lawyers have answered just about every question someone has regarding filing for bankruptcy. We understand that it is not an easy decision. When someone is married and overwhelmed by debt, they want to ensure they are not hurting their spouse by filing for bankruptcy. The good news is that you can file bankruptcy by yourself without hurting your spouse. Call (215) 701-6519 in Pennsylvania or (609) 755-3115 in New Jersey to discuss the pros and cons of filing jointly or individually.
Does My Spouse Have to File for Bankruptcy With Me?
The most obvious and immediate question that springs to mind 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. It may be more advantageous to you to file separately. Alternately, it may be more advantageous to you to file jointly. It depends 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.
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 is probably 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.
Save Attorney and Bankruptcy Fees
In addition to looking at the 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.
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 could 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 Pennsylvania 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. Our Pennsylvania bankruptcy lawyers will thoroughly examine your assets to determine which would be most beneficial.
Does My Spouses Income Impact My Bankruptcy?
Some potential 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.
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
- 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
There are times when filing an individual bankruptcy will protect your spouse from financial harm. However, every situation is unique. Our knowledgeable Pennsylvania bankruptcy lawyers will help you determine if you should file for bankruptcy without your spouse.
Your Spouse Has Non-Dischargeable Debt
The benefit of filing for bankruptcy together is clearing both of your 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.
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.
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
There is a significant difference, when it comes to how your spouse will be affected, between filing for debt under Chapter 7 VS. 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 creditor 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 can not 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 resolved more quickly, in time frames closer to three to six months.)
Will Bankruptcy Affect Our Credit Scores?
The fundamental question, “How will bankruptcy affect my spouse?” invariably leads to the more specific question, “What about credit scores?”
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.)
If both of you have debt, another factor you may want to weigh when deciding whether to file jointly or separately is the fee: typically, a filing fee must be paid. 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.
Our Philadelphia + Bucks County Bankruptcy Lawyers Can Help
Filing for bankruptcy sounds intimidating, but it might be the best financial recovery plan for you and your spouse. To talk more about your options, get in touch with an experienced Springfield bankruptcy attorney at Young, Marr, Mallis & Associates today, and let us help. You can also call us at (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania.