The emotional and financial challenges that life can throw at you are much easier when faced with a partner. That is part of the reason people tie the knot and get married. However, there are some obstacles you might want to keep your spouse well protected from.
For instance, you might face money problems and have to consider filing for bankruptcy. It’s a difficult decision, especially if your spouse could face harm during your bankruptcy. Thankfully, bankruptcy doesn’t have to be filed as a couple, and there are ways to protect your partner from absorbing collateral damage once you file.
Can A Married Person File Bankruptcy Without a Spouse?
The choice to file for bankruptcy can be difficult enough for a single person. For a married couple, the decision must take into account intertwined assets and debt. If you are married, you are permitted to file for bankruptcy alone, without including your spouse. Whether that’s the best idea or not can depend on your financial situation as a couple and where you live.
One of the biggest factors in your decision is the laws California sets forth governing marriage and bankruptcy. California is a community property state (as opposed to a common-law state). This means spouses jointly own most property obtained during the marriage. Even possessions with just one name on the title are considered joint property or debt and could be lost in bankruptcy.
Community property guidelines can make it harder for you to separate your debt and possessions from your spouse’s debts and possessions. Many of the assets that couples share are vulnerable when a property is sold off to pay debtors. If there are joint assets you or your spouse don’t want to lose, you’ll need to make sure you have enough exemptions in bankruptcy to hold those out of the debt payment process.
When You Should File for Bankruptcy Without Your Spouse
There are several situations when it would be advantageous for you to file for bankruptcy separately from your spouse. If any of the following circumstances are true in your situation, it might benefit you to file separately:
- Does one partner carry most of the debt?
- Does one spouse have more debt that’s not dischargeable? In which case a bankruptcy won’t provide much relief for him or her anyway. A bankruptcy could make their situation worse.
- Does the non-filing spouse want to protect certain assets that he or she solely owns? This can include possessions obtained before the marriage.
- Does one partner need to stay free of bankruptcy to make a big upcoming purchase? This can include a financial investment like buying a home, a car, or starting a business.
- Has one spouse already filed bankruptcy in the past 8 years? If so, he or she probably won’t benefit by filing again until eight years have passed.
- Does one spouse have a great credit record?
In simple terms, keeping one partner out of bankruptcy usually allows them to keep good credit. They also aren’t saddled by bankruptcy restrictions. The partner who is left out of the bankruptcy process can often help keep the other partner afloat financially. The family may also have a better chance of purchasing the things they need.
When You Should File for Bankruptcy as a Couple
Spouses who have accumulated a lot of assets while married or a lot of debt should consider filing as a couple. A joint bankruptcy provides the couple with the benefits of the bankruptcy discharge at the end of the process. This discharge is when the courts wipe away your qualifying debt.
When only one person files for bankruptcy, the non-filing spouse can end up without any discharge advantages and, in fact, your spouse could end up responsible for the joints debts that you were just cleared from. The non-filing spouse could miss out on discharge benefits while also taking a credit hit. Their score may fall. In short, one spouse faces some of the negative aspects of bankruptcy, without the couple enjoying the positive parts.
Sharing Bankruptcy Fees as a Couple
A joint filing is also beneficial because it allows couples to share in filing fees and attorney costs. You would pay these fees twice if you both file for bankruptcy individually. Couples can also take the debtor education courses required in bankruptcy together and save more money.
There are many of these little advantages and disadvantages to filing together and alone. It often takes a California bankruptcy expert to determine the best course for a couple with financial issues. You could discuss your case with a bankruptcy attorney and find bankruptcy isn’t helpful at all in your situation. This is why bankruptcy lawyers with Steers and Associates offer couples a free case consultation to determine the best course of action.
How Your Spouse’s Income Impacts Your Bankruptcy
When considering Chapter 7 bankruptcy you’ll have to pass a “means test” to prove you don’t make too much money to be allowed to file. Even if you file individually, you’ll still have to include your spouse’s income when the court considers your eligibility. The court won’t allow you to enjoy the discharge of debt that Chapter 7 provides when you and your spouse earn too much money each month.
The one exception is that you can leave off any income your partner brings in that isn’t used in support of the household. This is known as the marriage adjustment. The adjustment can subtract some of your spouse’s expenses such as a car payment, child support and alimony, and medical expenses. This adjustment could change the figures in your favor and allow you to get under the maximum income figure to file for Chapter 7 Bankruptcy.
Chapter 13 Bankruptcy Without Your Spouse
If you and your spouse make too much money to qualify for a Chapter 7 Bankruptcy alone or as a couple, you could be forced to switch to a Chapter 13 filing.
In Chapter 13 Bankruptcy, not as much debt is wiped out. You would create and follow a three to five-year plan to pay off a portion of your debt. If you complete the payment plan, you become eligible to receive freedom from some of your debt.
You can file for Chapter 13 relief individually. You don’t have to pass a means test; however, if your spouse earns a significant income, that could increase the payments you are expected to pay towards your outstanding balances. The marriage adjustment could provide an out in this case too. Those deductions from your total joint income could lower the payments you’d be expected to make.
Contact a Bankruptcy Lawyer Serving Couples in the Los Angeles Area
Couples take their marriage vows and pledge to love their partners in sickness and in health, and that should include financial health as well. Your spouse may not want you to face bankruptcy alone, but there are advantages to keeping your partner far away from the harmful aspects of the process.
The bankruptcy attorneys with the Law Offices of Steers and Associates have an extensive background in arming families with the knowledge they need to make these difficult decisions. No matter who ends up filing for bankruptcy, we want to make sure both partners find the financial freedom they are seeking.
When your family faces bankruptcy in Los Angeles or anywhere across Southern California, please contact us as soon as possible. We offer a free and confidential case evaluation to anyone considering bankruptcy. Let our local bankruptcy attorney look over your portfolio so we can determine your best next step.
Elena Steers is a highly experienced bankruptcy attorney, the founder of Law Offices of Steers & Associates, and previously worked as a Bankruptcy Trustee Assistant at the Office of the Chapter 13 Trustee in Los Angeles. Her current affiliations include the State Bar of California, National Association of Consumer Bankruptcy Attorneys, and Central District Consumer Bankruptcy Attorneys Association.