Under the Bankruptcy Code, spouses may file joint bankruptcy petitions or either spouse may file individually. Two of the most common reasons couples choose to file individually include:
- Debts are solely in the name of one spouse.
- One spouse owns substantial assets solely in his or her name that would be in jeopardy if he or she filed a joint bankruptcy.
But, regardless of the reason, filing bankruptcy together is not required.
How Does the Bankruptcy Court View Income if Only One Spouse Files Bankruptcy
If one spouse files individually, the court will include household income and expenses to determine eligibility. When verifying income, the non-filing spouse must also provide copies of pay advices or other evidence of income.
For example, if a husband is filing bankruptcy under Chapter 7, he must include his wife’s income in order to calculate the Means Test. If the household income exceeds the Means Test, the husband may not be eligible to file Chapter 7 and receive a discharge. If filing under Chapter 13, the dual income must be included when calculating the debtor’s disposable income and bankruptcy plan payment.
On the surface it may seem unfair to consider the household income because only one spouse is filing bankruptcy, but it balances out because the household expenses and all joint debts are also considered. The court allows the debtor to budget for food, utilities, medical expenses and other expenses based on the size of the family (i.e. the debtor, spouse and children) rather than for the debtor alone.
What Happens to Joint Debt if One Spouse Does Not File Bankruptcy
Joint debt can be tricky when only one spouse is filing bankruptcy. When one spouse files bankruptcy, he or she must include all debts, including any joint debts with the non-filing spouse. This can create a challenge for the non-filing spouse. The spouse who files bankruptcy will receive a discharge leaving the non-filing spouse to bear the legal responsibility for the full balance owed on any joint accounts.
For example, if a husband files bankruptcy and he has joint credit card debt with his wife, the husband’s legal liability to repay the credit card debt will be discharged through the bankruptcy. However, the wife’s legal liability for the full balance of the debt remains. In some cases, this is the best solution for a couple, but it is an important note to consider when deciding whether to file individually or jointly.
One approach to the problem of joint debt when only one person is going to file bankruptcy is to file a chapter 13 case. Chapter 13 contains a “co-debtor stay.” That means that if there is jointly-held consumer debt but only one of the obligated parties files a chapter 13 case, the non-filing party will be protected from collection as long as the chapter 13 is in effect. Also, in some situations, chapter 13 debtors can propose to pay jointly held debt in full in the chapter 13 plan, even if other creditors are not being paid in full.
Of course, the debtor and his or her spouse can choose to continue paying any joint debts to prevent the non-filing spouse from suffering any adverse consequences. Prior to filing a bankruptcy case, joint or individual, you should consult with a bankruptcy attorney together to discuss how any joint debts will be affected. The chapter of bankruptcy filed and the type of debt will uniquely affect how joint debt is treated in an individual bankruptcy filing.
We have many couples ask if filing bankruptcy has to be done by both husband and wife. I hope now you can see that it is absolutely possible for one spouse to file without the other. However, you should know that the spouse who does not file can be held fully liable for any joint debts accrued. Consulting with an experienced bankruptcy attorney can help you consider all the affects that may occur, and then choose the best situation for your family.
If you are ready to talk with an attorney, request a free bankruptcy consultation. We are here to answer all your questions and walk you through everything that you need to know about filing a joint or individual bankruptcy case.