Married couples often share the same debts, but that is not always the case. There are bankruptcy filing options for both situations. One partner may need to wipe out their debts but want to avoid harming the other partner’s credit. In some states, it can be beneficial to file for bankruptcy jointly. Before deciding, you should know the pros and cons of each filing option for married couples.
One Spouse Filing for Bankruptcy
If a couple is in a situation where only one of the two partners needs to file for bankruptcy, filing individually may be the right choice. An individual can file for chapter 7 or chapter 13 bankruptcy.
Chapter 7 – When a married person files for bankruptcy individually under chapter 7, they are basically agreeing to liquidate their non-exempt assets and use the value to pay down their debt. It is important to consider which partner’s name is listed on each asset. For example, if you are filing and the house is in your name, the house can be liquidated and resulting monies given to creditors to satisfy the debt.
Chapter 13 – If both you and your partner’s names are listed on major assets such as your house and one of you chooses to file for individual bankruptcy, chapter 13 may be a better option. This is due in large part to the “co-debtor” stay. This tool allows the co-signers to prioritize the debt which they share. In other words, you can pay the cosigned debt before individual debt which often results in paying creditors a reduced amount.
A Married Couple Filing Jointly
One of the major upsides to filing jointly is the reduction of fees. It is far less expensive for a couple to file jointly as opposed to each partner filing individually. It is also very efficient. Typically, hearings can be attended together, and all debts will be discharged for each person simultaneously.
In some states, filing for bankruptcy jointly can be advantageous because it is legal to double exemptions. This means the value of the assets that cannot be touched by creditors during bankruptcy doubles.
Downsides of filing jointly include:
- One partner has too many assets. If one half of the bankruptcy tandem owns too much property (for example), some joint assets may not be exempt.
- If one spouse has a large amount of “priority debt”, it can make chapter 13 bankruptcy expensive. Examples of priority debt are child support and taxes.
- Both credit reports are damaged. This can make it difficult to get loans in the short term.
If you and your spouse are considering your bankruptcy options, you need help. The decision to file individually or jointly can have long-lasting implications. To better understand your options, reach out to a skilled and licensed attorney. Elias Dsouza is that attorney. He has been helping couples navigate the complex issues related to bankruptcy for over 15 years. Contact Elias today for a free consultation.