Bankruptcy law allows married couples to file a bankruptcy petition jointly as a married couple. The law also allows couples to file separately as individuals. If you are married and considering bankruptcy. Contact the Morrison Law Group for a free consultation. We can help you decide if bankruptcy is your best option and, if so, whether you should file jointly or individually. See our blog about married couples filing jointly here.
The Positives Aspects of a Married Couple Filing Individually
It is not uncommon for people with vastly different financial situations to get married. Some may enter a marriage with unpaid, delinquent debts. Others might have an excellent credit rating and own substantial assets before marriage. A person may even marry without disclosing their financial difficulties to the other spouse.
By contrast, the party considering bankruptcy may have accumulated a significant amount of debt, a low credit score, and some assets that would be non-exempt under state law. In these cases, the filing of a bankruptcy case individually will erase the filing spouse’s debts without negatively affecting the non-filing spouse’s credit or property.
The Negative Aspects of a Married Couple Filing Individually
In sum, filing individually will not help overcome the effect of a non-filing spouse’s income in a Chapter 7 case. However, in an individual Chapter 13 filing, the automatic stay will protect both spouses. Keep in mind that, if both spouses need to file a bankruptcy case, filing two individual cases will result in greater court costs and attorney fees because you are filing two cases instead of one.
While a spouse’s Chapter 7 bankruptcy filing will not protect the non-filing spouse from creditors, a spouse’s Chapter 13 will through the “codebtor stay.” The codebtor stay is a mechanism that applies bankruptcy’s automatic stay to non-filing spouses in Chapter 13 cases. The automatic stay goes into effect when a bankruptcy case is filed and acts as a bar to the collection activities of creditors.
A married filer must include both spouses’ incomes when filing for individual bankruptcy unless the spouses are separated. This means that you must include the non-filing spouse’s income on the means test if you share a household. If your spouse has substantial income, this may make it more difficult to qualify for a Chapter 7 bankruptcy filing.
The means test allows the spouse filing for bankruptcy to deduct some portion of a non-filing spouse’s income used to pay for other household debts, as well as the non-filing spouse’s separate debts. This marital adjustment deduction may make the difference in qualifying for a Chapter bankruptcy filing through the means test. Keep in mind that marital deductions must be fully documented so you may easily prove the existence of the deduction.
The following are some examples of expenses that may be considered reasonable deductions:
- payroll deductions such as taxes, insurance, union dues, and retirement contributions;
- payments the non-filing spouse makes on 401(k)s; credit cards, student loans, or other separate individual debts
- mortgage, homeowner’s insurance, and other expenses for real property separately owned by the non-filing spouse alone
- car loan payments and other expenses such as gas, maintenance, and insurance for the non-filing spouse’s car
- spousal maintenance (alimony), child support, or other support obligations of the non-filing spouse from another marriage or relationship
Experienced bankruptcy counsel may be necessary to help any married couple understand bankruptcy and its full list of benefits. Theron Morrison has helped 8,000 people file Chapter 7 and Chapter 13 bankruptcy cases to gain a fresh start. Call 801.456.9933 to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, Orem, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.
