Are you considering personal bankruptcy, but are worried about how it will impact your spouse? Read on below to find out exactly how personal bankruptcy can affect the finances of a married couple.
Is bankruptcy a good idea for you? Find out by clicking here.
Filing for Personal Bankruptcy When Married
Even if you file for individual personal bankruptcy, it can affect your spouse, too. In terms of debts and property, those things will be treated differently depending on where you live – in a community or common law property state.
Each state has different laws which affects the property rights you hold during marriage.
Common law property states follow the rules of equitable distribution. Community property states deem most property acquired during the marriage to be equally owned by both spouses regardless of who is on title. What property is considered part of your bankruptcy depends on whether you live in a common law or community property state.
Community Property States
- New Mexico
In Community Property States, any property obtained by either spouse in a marriage is considered “community property.” In other words, 50% of whatever you own – even if obtained individually – belongs to your spouse. All property is divided in half equally, 50/50.
This also includes:
- Monetary earnings
- Any property bought with those earnings
- All debts accrued during the marriage
This begins on the marriage date and ends if and when the couple physically separates. So if you are getting divorced, note that any debts or earnings after this time are not considered community property.
Common Law Property States
Common Law Property States are different in that they favor the individual over the married couple.
The common law system provides that property acquired by one member of a married couple is owned completely and solely by that person. Of course, if the title or deed to a piece of property is put in the names of both spouses, however, then that property would belong to both spouses. If both spouses’ names are on the title, each owns a one-half interest.
So if one spouse buys a new car, she would have to put the car in both her name and her spouse’s name in order for it be considered property of both people in the marriage.
Exceptions to Equal Division Rules
However, there are exceptions to this Equal Division Rule, for example:
- One spouse misappropriates community property during the marriage
- One spouse incurs education debt. This is considered separately incurred debt, and that spouse will keep their own student loans.
- One spouse incurred tort liability NOT based on activity for the marital community’s benefit.
- Personal injury awards are considered community property only during the marriage. If divorced, it is only awarded to the spouse who was injured.
There’s also a concept known as “negative community.” This term refers to situations in which the community liabilities and debts exceed available assets to pay them. Thus, the ability of each spouse to pay off the debts is more heavily considered in order to protect creditors.
Should I File Jointly or Individually?
When filing for bankruptcy when married, one of the most important steps is deciding whether you want to file jointly or individually. Here are a few things to consider before making your decision:
- how much property you own
- if you have shared debts
- the exemption laws of your state
Being married doesn’t mean you have to file jointly – often times, it is better to file individually.
For example, say John and Gretchen are married, and John has a bunch of credit card debt. However, Gretchen has a great credit score and excellent credit history. They’re also trying to buy a house soon. In this case, it would be in their best interest for John to file for bankruptcy individually. By doing this, Gretchen’s credit will not be negatively affected.
In another scenario, perhaps the couple has some shared debts, or both of them have individual debts that are overwhelming. Each spouse can file individually. Why would they do this? Well, it’s based on your state laws. Some states do not allow people to double exemptions in joint petitions. Hence, by both filing individually, you’re able to protect more of your property than you could have otherwise.
Remember: if you live in a community property state, all marital assets are considered property of the bankruptcy estate regardless of who is on title, even if only one spouse files.
Keep in mind that there are disadvantages to this, too. Filing individually, especially when both spouses do so, is more expensive – you’ll pay higher court costs and attorney fees. Furthermore, if your spouse files individually for bankruptcy, it generally doesn’t protect you from creditors.
However, the codebtor stay in Chapter 13 bankruptcy can protect you if you have shared debts. In addition, if you live in a community property state, you can rest easy knowing this:
If a joint debt is discharged by one spouse, that creditor can’t go after any community property to satisfy the nonfiling spouse’s obligation.
If your other spouse has debts, and they choose not to file, your bankruptcy filing will not protect them from their debts. They will still be responsible, as only the individual filing for bankruptcy receives a discharge.
Want to save money? It will cost you less to file jointly than individually. Court fees when you file individually (by 1 person) have the exact same cost as filing jointly. In addition, attorney fees are usually much lower for joint bankruptcy filing than 2 individual filings. If you want to save money, this is the way to go.
It also saves you energy, stress, and time – you only have to file one petition, only have to go through one bankruptcy process. Furthermore, both spouses can attend the hearings together and get everything done at once through a single bankruptcy. It’s much more convenient and efficient.
As mentioned previously, some states won’t allow couples to double their exemptions during a joint bankruptcy. Consider this before making your decision, as you’ll want to protect as much property as you can.
If your wife or husband owns a lot of non-exempt separate property, filing jointly may not be the right move because it could put your spouse’s assets at risk.
Learn More About Personal Bankruptcy When Married by Speaking with the Best Bankrupcty Attorneys in Arizona
Are you considering filing for personal bankruptcy when married? It’s important to understand the risks and benefits before filing. Talk to the expert Bankruptcy Attorneys at Davis Miles Law Firm today. We sit down and listen to all your concerns, provide you with unbeatable expertise and guidance, and help you save time, energy, and money. Call us at 844-366-4529 today to schedule a consultation!
Personal Bankruptcy When Married | Davis Miles McGuire Gardner, PLLC – Phoenix, AZ