Married couples who are considering a Chapter 7 or Chapter 13 bankruptcy case filing must decide between filing a joint bankruptcy or individual bankruptcy petition. For most couples, filing bankruptcy jointly will protect more property and discharge more debts. While filing a bankruptcy case jointly is typically the right choice, both spouses are not required to file.
An example of a scenario where filing bankruptcy individually may be preferred is when one spouse enters the marriage with many unpaid debt obligations. This will allow the non-filing spouse to maintain his or her credit rating. The nonfiling spouse always has the option of filing for bankruptcy later if necessary.
When married debtors file jointly, they will extinguish all the dischargeable debts that they both owe. Thus, if spouses are jointly liable to a creditor, a Chapter 7 bankruptcy filed by only one spouse will not relieve the other of the obligation to repay the debt. In this case, a creditor will continue to pursue the other spouse for payment. However, if only one spouse files a Chapter 13 bankruptcy case, the codebtor non-filing spouse is protected by the codebtor stay under §1301 of Title 11 (the Bankruptcy Code).
Liability for debts such as credit cards and home loans arises by agreement of the parties, and financial responsibility is incurred by those who sign the credit application. An exception is an income tax return where the filing of a joint return obligates both spouses for payment of the full amount of tax due.
Creditors with claims against a non-filing spouse may only collect from the separate property of the non-filing spouse. In Utah, separate property consists of assets acquired before the marriage and acquired by gift or inheritance during the marriage.
Although only one spouse may file for bankruptcy, the household income from both spouses must be considered to determine eligibility to file a Chapter 7 bankruptcy case. If household income is more than the qualifying median income required for filing a Chapter 7 case, the spouse filing may be required to file a Chapter 13 case instead.
Federal bankruptcy law allows married debtors to make a “marital adjustment” when calculating income. The marital adjustment allows the filing spouse to subtract certain expenses from the non-filing spouse’s income and helps married debtors reduce disposable income to become eligible to file a Chapter 7 case.
For any married couple considering bankruptcy, the first decision is determining which situation is best: filing a joint bankruptcy or individual bankruptcy. For most couples, joint bankruptcy will protect more assets and discharge more debt. The analysis is complicated and requires the assistance of an experienced and knowledgeable bankruptcy attorney. Call 801.456.9933 today to schedule a FREE consultation. We are Utah’s only statewide bankruptcy law firm and have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.
