Can I File for Bankruptcy Without My Spouse?
Though there is room to debate the wisdom of filing for bankruptcy without your spouse, there is no law preventing a husband or wife from doing so. There are several factors that should be considered, including the status of your finances and the bankruptcy laws in your state, but any married individual can file on his or her own.
If the financial situation between partners is “clean” in that debts are in one person’s name, this kind of filing can make sense. But it takes careful study to determine the best approach, because filing without your spouse, in many cases, can be harmful to the couple’s marital and financial future.
Reasons to File without Your Spouse
Circumstances that may make it wise to file without your spouse include:
- You keep all finances separate, and have documentation to prove that
- There is a prenuptial agreement
- Debts are in your name only
- Your spouse already has filed bankruptcy and is not yet eligible for a discharge
- Your spouse may soon be receiving an inheritance (any inheritance received within 180 days of filing becomes part of the bankruptcy estate, so the Trustee can use that money to pay creditors)
- You want to ensure your spouse has the ability to file in the future, if needed
For example, if the debt truly is the husband’s alone and not his wife’s, filing without your spouse in most cases will protect her credit score. However, the credit score may be negatively impacted if there are joint assets and the ripple effect of bankruptcy makes it impossible or challenging to stay current on those debts. Your spouse remains just as responsible for those debts.
Your state of residence also affects the decision, especially if it is one of the nine community states (Arizona California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin). In community states, all marital assets become part of the “bankruptcy estate,” which is automatically created on filing. It consists of both husband and wife’s property and assets, which means assets in the spouse’s name are part of the proceedings.
Careful assessment of your financial situation and the local rules all come into consideration.
Filing for Chapter 7 Bankruptcy without Your Spouse
Chapter 7 is considered a “liquidation” filing. In other words, nonexempt assets are sold to pay off as much debt as possible. Debt is discharged, and the filer lives with the hit on the credit report and score for the next 10 years.
A means test is required when filing Chapter 7 bankruptcy; it basically determines if you qualify for Chapter 7. It’s based on household income from six months before filing the petition. If the couple shares the same house, your spouse’s income must be included in the means test, even if you filed on you own. Expenses that do not benefit the household can be subtracted from the spouse’s contribution to the household income. More on that to come.
Once Chapter 7 is filed, an automatic stay is put in place. This legal action stops garnishments, foreclosures, repossessions and any debt collection lawsuit. But the stay only applies to the individual who files. If there is any joint debt shared by the couple, the spouse continues to remain responsible for that debt.
It’s important to know if you live in one of the nine community property states. If so, the automatic stay extends to the community property of the couple that was earned or acquired during the marriage. This typically means the non-filer’s wages cannot be garnished for community debt in those nine states.
The other 41 states have what is called common law property, which means that if one person makes a purchase during the marriage – buys a car, for example – that property belongs to the one person, unless it is titled or put in the name of both. In common law states, debts incurred by one person belong to that individual only.
Once the Chapter 7 filing is discharged, the only person protected by the discharge is the individual who filed. The non-filing spouse remains liable for any joint or co-signed debts.
Filling out Bankruptcy Forms Under Chapter 7
Certain forms must be filled out properly when filing without your spouse. These include:
- Schedule A/B, where you list all assets
- Schedule C, where you claim exemptions to protect assets
- Schedule H, which lists joint debts
- Schedule I and J, a listing of your income and expenses
Filing for Chapter 13 Bankruptcy without Your Spouse
Chapter 13 is considered the “repayment” bankruptcy. In this filing, the court works out a repayment plan for debt based on your income and financial situation. Creditors may not receive everything they want, but they will receive something.
Chapter 13 bankruptcy includes what is called a co-debtor stay. This is a good thing. It protects your spouse or partner as part of the automatic stay. The co-debtor stay prevents creditors from pursuing debt for the spouse for the duration of the bankruptcy. There is no co-debtor stay in Chapter 7, only in Chapter 13, so consider carefully which is better for you if you need to file. It also only protects individuals, not businesses.
The co-debtor stay does not release the spouse from obligations for joint debts. The co-signer for any debt (credit card, home, etc.) remains responsible for paying it. As long as the spouse meets those obligations, their credit score will not be affected.
Other Factors to Consider When Deciding to File Separately
Every financial situation is unique, and there may be factors that contribute to filing without the spouse. A spouse may wish to protect a good credit rating, or a spouse may not have been part of the debt that led to bankruptcy. Just like people, marriages are unique and many factors should be weighed when deciding the best way to approach bankruptcy.
The marital adjustments are an important part of filing on your own. This means that though you have to declare your spouse’s income on both Chapter 7 (on the petition) and Chapter 13 (on Form 22C), you may be able to exclude part of it when considering household expenses. This would apply if the spouse has his or her own debts, or is supporting another household, perhaps a child from a previous relationship.
Courts will decide what can be deducted through the marital adjustment, but some items may include the following from the non-filing spouse:
- Payroll deductions, i.e. taxes insurance, union dues and retirement contributions
- Payments on individual loans, be it credit card, or student or car loans
- Spousal or child support
- Attorney fees for the bankruptcy
The court basically can deduct any portion of the income that does not apply to supporting the joint household, if it chooses. Be prepared to document any marital adjustment you claim.
Spouses With Separate Households
You do not need to include your spouse’s income in the bankruptcy filing if you and your partner maintain separate households. Some couples support separate households. Sometimes couples have jobs in different locations. Other times, a separate residence is needed to ease marital tensions. Whatever the reason, if your marriage or partnership includes separate households, you do not need to include your spouse’s income when filing.
Spouses With Co-Signed Car Loans
A car loan can be dealt with in one of three ways in Chapter 7 bankruptcy, and is done through Form 108, the Statement of Intentions:
- Reaffirming the loan. The debt is not discharged, and the loan remains in place as is. You must stay current with the payments, which ensures the filing does not affect the spouse’s credit score.
- Redeeming the car. You borrow money to pay what the car is worth, which eliminates the loan and gives you title of the car. If you have a co-signer and pay the bank less than what is left on the loan, this approach may mean you or your spouse have to pay the difference – unless it is discharged in bankruptcy.
- Surrendering the car. Walk away from the debt, give up the car to the bank or creditor and start anew after filing. Surrendering may mean the car goes to the spouse, who then makes the payments, or you give up the car. Either way, the filer’s responsibility for the loan upon surrendering is discharged.
Reaffirming the loan does not affect the spouse. But if you choose redeeming or surrendering, the spouse could be responsible for the balance of what loan remains. This does not have to be a negative. If your spouse loves the car, he or she may be willing to assume that debt to gain ownership.
What to Do Next
It’s always wise to consult with a bankruptcy attorney before filing. Lawyers have experience and understand the nuances of the rules and laws.
Consider the inheritance that may be coming to your spouse. Do you understand the rules regarding said money? An exemption could be filed for the inheritance, but only up to a certain amount. If you become eligible for an inheritance with six months (180 days) of fling, that money could become part of the bankruptcy estate. If it sounds overwhelming, it might be. And it explains the importance of consulting and considering an attorney.
Remember that the first meeting typically is free; use that to your advantage to gain some insight and understanding. A nonprofit credit counselor who can assess your financial situation may even be able to help before filing as well. Take advantage of any and all help.
About The Author
Max Fay has been writing about personal finance for Debt.org for the past five years. His expertise is in student loans, credit cards and mortgages. Max inherited a genetic predisposition to being tight with his money and free with financial advice. He was published in every major newspaper in Florida while working his way through Florida State University. He can be reached at [email protected].
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