CAN ONE SPOUSE FILE BANKRUPTCY ALONE?

While it is common for a husband and wife to file a joint Chapter 7 or Chapter 13 bankruptcy, in some cases it may be beneficial for only one spouse to file.  When one spouse files for bankruptcy protection, the other spouse is NOT automatically joined into the case.  The husband and wife are treated separately and individually, although there can be some consequences to the non-filing spouse, both positive and negative.

Filing separately can have several advantages to a husband and wife who have separate property and debts.  It is especially appropriate when there is a large debt that only one spouse is liable to pay, and the parties are able to either protect their marital property through exemptions or by virtue of the non-filing spouse holding the property as non-joint property.  Property in which the debtor has no ownership interest is generally not property of the debtor's bankruptcy estate, and is therefore beyond the reach of the bankruptcy court.

While the bankruptcy automatic stay will stop collection action against the debtor, this protection does not apply to protect a non-debtor.  In a Chapter 7 case, a creditor may still collect on a joint debt from the non-filing spouse.  In a Chapter 13 case, the bankruptcy code imposes a co-debtor stay that generally prohibits collection on joint debts during the bankruptcy.

Likewise, the discharge order at the end of the case will only apply to bankruptcy debtor.  The discharge does not prevent collection on any joint debt from the non-filing spouse.  Most joint debts are the result of a contract or the agreement of the husband and wife to pay a debt, however in some limited cases a statute or other circumstances may make both parties liable for a debt.  If you have any questions concerning whether you or your spouse is liable for a debt, consult with your attorney.

Property may be protected during the property through state or federal law exemptions, or the property may be excluded from the bankruptcy estate when the bankruptcy debtor has no ownership interest.  Property that is held jointly, and cannot be protected by exemption laws, may be at risk for turn-over to pay creditors in a Chapter 7 case.

The decision to file a Chapter 7 or Chapter 13 bankruptcy for one or both spouses can require a complex analysis of the separate and joint property and debts of each spouse.  Every case is different and while some cases gain a benefit from filing jointly, other cases receive a greater benefit from a separate bankruptcy.  If you are in a situation where a separate bankruptcy filing may benefit your family, consult with an experienced bankruptcy attorney and discuss your options.  The federal bankruptcy laws offer many choices for individuals in need of debt relief and your attorney can help you decide the best financial decision for your family.