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Does Filing for Bankruptcy Affect Your Spouse?

Does Filing for Bankruptcy Affect Your Spouse?

SHORT ANSWER: In most cases it does not have to. When it comes to deciding on whether or not to file bankruptcy, married couples often have a lot of questions. Not knowing what to expect from bankruptcy or how it works when filing individually or jointly can make anyone feel insecure and anxious about their financial future. Here is some insight into how the bankruptcy process works for married couples.

What Happens to Property?

One of the most common concerns for married couples who may be considering bankruptcy is what will happen to their properties. When filing for bankruptcy without your spouse, separate property owned solely by your spouse will not be affected. However, depending on where you live, jointly-owned assets may be treated differently for common law property states and community property states.

Whether you live in Kansas or Missouri, an experienced bankruptcy attorney will be able to discuss your options as related to the property laws in your state and present the best plan of action that will ease your property concerns.

Will Filing Bankruptcy Affect My Spouse’s Credit?

In most cases, one spouse can file for bankruptcy without impacting the other spouse’s credit. Joint debt will only affect your spouse’s credit score if you file for an individual bankruptcy if the non-filing spouse does not keep up the payments on the jointly held debts. For example, the co-signer of a loan or credit application agrees to be responsible for the debt if the other party defaults on payments. Even if the bankruptcy filer’s liability on the jointly held debt is discharged through an individual bankruptcy filing, the creditor can still seek out the non-filing spouse to repay the debt. However, If your spouse continues to pay the debt, then the bankrutpcy will not Negatively affect the non-filing spouse’s credit score.

If the joint debt is overwhelming for both you and your spouse, consult a bankruptcy attorney about your options. Your spouse could be protected through a “codebtor stay” if you are eligible to file for Chapter 13. A bankruptcy attorney can take a deeper dive into your financial situation to determine what options will be beneficial in the case of joint debt.

What Type of Bankruptcy Should I file?

The type of bankruptcy that would be best to file depends on each spouse’s financial situation as well as what types of debt you are seeking to have discharged. Here are the differences between Chapter 7 and Chapter 13:

Chapter 7

Chapter 7, also known as liquidation or straight bankruptcy, is structured to eliminate general unsecured debt only. After completing Chapter 7 bankruptcy, the discharged debt no longer has to be repaid. The following debts are dischargeable in Chapter 7:

  • Credit card balances
  • Payday loans
  • Medical bills
  • Back utility bills
  • Personal loans
  • Broken cell phone contracts
  • Prior car repossessions
  • Debts owed to previous landlords
  • Broken cable or internet contracts
  • Overdrawn bank accounts
  • Stop garnishments

Chapter 13

Chapter 13, also known as a wage earner’s plan or debt reorganization, is structured to accommodate people who have assets necessary to maintain their household or that need protection from collection on debts that cannot be dischared like taxes, home loans, auto loans, or student loans. It may also be an option that can protect your spouse from creditors if you file bankruptcy alone. Chapter 13 may be the right choice in the following situations:

  • Pending Foreclosures
  • Vehicle repossession
  • Tax debts
  • Unsecured debt
  • Stop garnishments when you have limited cash available for legal fees
  • Need bankruptcy protection requiring little to no cash upfront
  • Student Loans – Student loans are generally not dischargeable in bankruptcy, but they may be placed on hold while you address your other debts. Once a filer has discharged their general unsecured debt and paid off their non-dischargeable debts, most filers have room in their budget to resolve their student loan debt.

The bankruptcy process can be complicated, and every married couple’s financial situation is unique. While, in some instances, filing for bankruptcy without your spouse can be advantageous, it’s always best to speak to an experienced bankruptcy attorney so you can be informed of all your legal options. If you and your spouse are overwhelmed with debt, Moore & Associates, LLC can help. Contact us today to learn more about bankruptcy and our no cash upfront options so you can rest assured you’ll get the debt relief you deserve.

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