Can (and Should) Only One Spouse File Bankruptcy?
Updated: Feb 8
To the question of whether can only one spouse declare bankruptcy, the answer is yes. However, it is important to delve into not only whether it is wise for only spouse to file, but also how the non-filing spouse is implicated.
The first determination to make in figuring out if only one spouse should file bankruptcy, is to look at the married couples debts and see how many of them are co-debts. The effect of the discharge as to these co-debts is going to be minimal if only one spouse files, because while the filing spouse will get a discharge of those debts, the non-filing spouse will continue to owe on them. And as the marital unit is bound to have co-mingled funds, the household will ultimately not be relieved of the burden of any debt that the non-filing spouse continues to owe.
Therefore, a debtor who has a good bit of joint debt with a spouse, would derive a bigger benefit out of filing a joint petition with their spouse than filing alone (assuming the co-debts in question are dischargeable).
The next thing to consider is the household assets and how they are titled. Part of this analysis will depend on whether the debtor resides in a community property state and the corresponding state law, in which case the debtor might have an ownership interest in assets that he/she might not realize.
A debtor is only allowed to keep a certain amount of property in a chapter 7, which is determined by the debtors allowable exemptions. In a chapter 13 bankruptcy, debtors can almost always keep all their property, but their chapter 13 repayment plan is more costly if their unsecured pool is higher. The pool is determined in part by the non-exempt equity the debtor is retaining.
As such, the debtor needs to make sure prior to filing that he/she is not exposing the assets of the non-filing spouse in the debtors bankruptcy. If the debtor is exposing the non-filing spouses assets, then the debtor might want to either not file or turn the filing into a joint filing.
One thing debtors often dont realize is that even though the non-filing spouses debts are not discharged in the debtors bankruptcy, the non-filing spouses income is still factored into the debtors bankruptcy petition. The debtors eligibility to file a chapter 7, as well as part of the amount of chapter 13 repayment plan, is determined by the results of the means test.
Since the marital unit is one, the non-filing spouses income always needs to be factored into the means test to determine the debtors ability to repay creditors. The debtors ability to qualify for a chapter 7 is actually rarely different whether the debtor files alone or jointly with the spouse, as it would take a rare set of circumstances for the debtors means test results to be different whether filing single or jointly.
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