Considering a bankruptcy? You may be surprised to know your spouse doesn’t necessarily have to file just because you do.
- One of you can file while the other does not.
- Each of you can file separate bankruptcy cases.
- You can file a joint bankruptcy case.
We’ll cover the reasons why someone might choose to file a separate bankruptcy case from their spouse in a different blog post. In this post, we’ll focus on what you need to consider before deciding whether only one of you should file bankruptcy, or whether you should file a joint case.
Do you both have a lot of debt?
Theoretically the debt you both carry impacts the household finances no matter what. If you’re carrying a huge debt load it may make more sense to go ahead and file together.
Otherwise, you may not see much relief after your discharge. And if you’re filing for Chapter 13 bankruptcy you’re committing (as a couple) to the Chapter 13 payment plus all the payments on your spouse’s bills that won’t be included in the bankruptcy.
That doesn’t mean you’d necessarily pay as much into your Chapter 13 plan as you’d pay when filing together, as the marital adjustment deduction can reduce this amount.
Do you have joint debts?
If you have joint debts you need to consider whether you’re willing to keep paying them as a household during the bankruptcy and after. The creditors can keep right on going after your spouse after your automatic stay is in place.
This means collection calls keep happening and that money keeps flying out the door.
Joint debt does not necessarily mean debt in both your names.
According to Title 23 Pa.C.S.A. Domestic Relations § 4102, any debt contracted “for necessaries by either spouse for the support and maintenance of the family” is considered joint or marital debt.
This means a medical bill could have a husband’s name on it, but a wife may still be liable for it. This is also true for utility bills, and could even be true for credit card bills if you used those bills to buy food, clothes, or other household necessities.
If most of your debt falls under this category it makes sense for both of you to file to make sure the debt is completely discharged. Otherwise, the debt will continue to impact the household and its finances.
Who owns your property?
It may be advantageous to file separately if the spouse who is not filing bankruptcy owns a home or car you’re trying to save, especially if the home or vehicle belonged to them prior to the marriage, making it nonmarital property. This might allow you to file Chapter 7 bankruptcy while keeping your home and car, without having to worry about whether this property is exempt.
In some cases, the name that’s on the mortgage does matter in terms of whether the spouse is liable for the debt, without creating liability for the home under the “support and maintenance” clause of Title 23.
You will want to contact an attorney before making an assumption in either case.
Note: The Means Test
You will want to take the means test into account if you plan on filing Chapter 7 bankruptcy. Even if your spouse stays out of the bankruptcy your income, and your spouse’s, would be used to determine whether you are eligible. Together, they would need to fall under Pennsylvania’s median income for two earners at $58,256.
Remember, calculating base income is only the first step of the process.
If your income together is going to cause you to fail the means test it may be smarter for the household budget to just go ahead and file together so you can eliminate as much debt as possible. This is also true if the pattern of your household spending creates a disposable income that causes you to fail the means test.
Not sure what to do?
Whether to file your bankruptcy alone or with your spouse is an excellent question to bring us when you call us for your free consultation. Every household has a unique situation, and the ins, outs, and complexities of that situation should be brought to our attention when you speak to us so we can give you the best possible advice.