Bankruptcy is the legal process in which a person’s debts are discharged, making the debtor no longer liable for their dischargeable debts. If only one spouse in a marriage owes debt, only that partner should file for bankruptcy. Debts in which spouses are joint and severally liable for payment will remain with the spouse who has not filed for bankruptcy.
However, in states that adhere to community property law, a single spouse bankruptcy for joint debts may be advantageous. An example of this would be how if a spouse files for bankruptcy without their partner, then only the spouse’s debts are discharged in bankruptcy. The partner’s debts are still unaffected. If the debts are held jointly, the non-filing partner will still owe.
When filing for bankruptcy in the above example, the bankruptcy filing will appear on the spouse’s credit report. It would not appear on the partner’s credit score. Generally speaking, a non-filing spouse should not have their credit damaged because of their spouse filing for bankruptcy.
In a common law property state, separate property that is under one name and not jointly with the other spouse would become part of the bankruptcy. The spouse’s separate property and their share of joint property are not included in the bankruptcy if only one spouse is filing.
Alternatively, in a community property state, all community property is part of the bankruptcy estate.This remains true even if one spouse files without the other. However, it is important to note that not all property is community property. Separate property consists of property that was acquired before marriage, money recovered from a personal injury suit that is not attributable to lost wages, and property received through gift and/or inheritance. Additionally, there may be other exemptions that will not become part of the bankruptcy estate.
Does Single Spouse Bankruptcy Change the Nature of Joint Debts? Are There Any Exceptions?
Whether a single spouse bankruptcy will change the nature of joint debts depends largely on the chapter of bankruptcy being filed. Under Chapter 7 bankruptcy, when a spouse’s debts are discharged, the creditor can pursue the other spouse. However, a major advantage of Chapter 13 bankruptcy is that the creditor will leave the co-debtor alone, as long as bankruptcy plan payments are made in a timely manner. This is partially because under a Chapter 13 bankruptcy, the debtor plans to repay their debts according to a repayment plan.
Generally speaking, the bankruptcy of one spouse does not affect the other. However, there are some notable exceptions. An example of this would be how the bankruptcy of one’s spouse may show up on the other’s credit report if joint debt is involved. This is a notably contentious area of the law. Another notably contentious area of the law occurs when a spouse attempts to initiate bankruptcy during an ongoing divorce proceeding.
In addition to the above situations, if a couple is applying for a joint loan in the future, the bankruptcy of one spouse will affect the creditworthiness of the applying couple as a whole. Another exception involves jointly held property. In an average bankruptcy, much of the debtor’s non-exempt property is repossessed or taken away by creditors. The property is then sold in order to recover some profit. If that property is jointly held, it can also be taken away, most commonly a motor vehicle that is held jointly in both spouses’ names.
This is especially important in community property states, which are states where both spouses in a marriage own and are responsible for all the debt and property acquired during the marriage. The community property states are:
- Arizona;
- California;
- Idaho;
- Louisiana;
- Nevada;
- New Mexico;
- Texas;
- Washington; and
- Wisconsin.
Alternatively, property acquired by the non-filing spouse after the spouse’s bankruptcy is no longer accessible by the non-filing spouse’s creditors. Any joint debts that are discharged by the bankruptcy of a single spouse also apply to the non-filing spouse. What this means is that the non-filing spouse in community property states will receive a partial advantage from their spouse’s bankruptcy.
From that point on, creditors are only allowed to pursue the non-filing spouse’s separate property. As mentioned above, examples of this would include property that was acquired before marriage, property that was gifted to one party during the marriage, or property acquired through inheritance.
Why Are Collection Agencies Contacting Me and My Spouse?
It is not uncommon for collection agencies to pursue both spouses, even though only one spouse owes them a debt. If you feel that their attempts to collect payment are only meant for your spouse, but are still addressed to you, there are some steps you should take in order to minimize the annoyance caused by them.
Your first step should be to request proof of responsibility for those debts, from the debt collectors that are contacting you with collection demands. If the debt in question is solely in your spouse’s name, you can ask the collectors to stop.
If your spouse has already filed for bankruptcy, they should ask the bankruptcy court for an automatic stay. This will halt all collection activity. If after your spouse has received their automatic stay, and the creditor is still contacting or harassing your spouse about the debt, they should notify the creditor that they have filed bankruptcy. They should tell them that all communications should be stopped.
If at that point the debt collectors continue to contact the non-filing spouse, the debt collectors may be in violation of the Federal Fair Debt Collection Practices Act (“FDCPA”) or the state law that protects debtors. The FDCPA is a federal law that protects debtors from harassment, unfair debt collection practices, and threats from debt collectors. Local fair debt collection laws, such as Texas’ Fair Debt Collection Practices Act, may also provide debtors additional protections.
Can I File For Bankruptcy Without My Spouse’s Knowledge?
Simply put, it would be possible for one spouse to file for bankruptcy without the other partner ever finding out. However, Chapter 7 bankruptcy utilizes income as a test for eligibility. It also uses income garnishment as a means of settling debt.
As such, the non-filing spouse would most likely notice if the bankruptcy court for debt repayment is garnishing their paychecks. Outside of Chapter 7 bankruptcy, there are many other ways for a spouse to discover their partner’s financial situation.
Do I Need a Bankruptcy Attorney?
If you are considering filing for bankruptcy, you should consult with an experienced and local bankruptcy attorney before moving forward with the process. While bankruptcy can provide relief, it is not without its consequences. There are many downsides to filing for bankruptcy. An experienced attorney can help determine whether there are any alternatives to bankruptcy that are available based on the specifics of your case. For example, an attorney may be able to reach an amicable settlement of debts between you and the creditors.
An experienced bankruptcy attorney can also help you determine whether your state’s laws will treat your property as community property or common law property. An attorney will also explain how that property determination will affect your legal options. Further, should you decide to proceed with filing, your attorney can advise you regarding which chapter would best suit your needs.
Finally, an attorney will be able to represent you throughout the entire bankruptcy process, including meeting with the creditors, and representing you in Court, should any legal issues arise.
