How Bankruptcy Affects Your Spouse
As more and more married couples keep their finances separated, people frequently ask if bankruptcy will affect their husband or wife. Since nobody can MAKE you file for bankruptcy, a number of our married clients end up filing bankruptcy without their husband or wife. Usually the non-filing spouse will want to know “How does the affect me?”. The impact a bankruptcy filing may have on your spouse varies based on a number of different factors. In this blog we will explore some of the different factors that may or may not impact a non filing spouse in bankruptcy.
One of the first things to determine is whether or not any of the debts are joint debts. A joint debt is a debt where more than one personal is liable. For example, if a husband and wife go car shopping, purchase a new vehicle and both sign for the auto loan. In this case, the husband and the wife would both be liable for the entire amount of the auto loan. So if the car were to be repossessed at a later point then the creditor could try to collect from either the husband or wife.
Now, if the husband decides to file for bankruptcy and discharge his liability to the creditor the wife is still liable for the full amount of the debt. Most spouses do not want to stick their significant other with a large sum of debt they initially agreed to pay together. Therefore, it’s vital to determine whether the couple has any joint debts so as to not inadvertently stick one spouse with all the debt.
One situation to be careful of is in the case of an authorized user. Although both husband and wife may have access to a line of credit, it does not mean that both of them are liable for it. Frequently, spouses allow their significant other to be an authorized user on a credit card. As an authorized user you are not liable for the debt at all. For example, if the husband opened up a credit card and allowed the wife to be an authorized user, the husband is still liable for 100% of the debt. In this case, it may make sense for only one spouse to file.
Jointly owned property is another factor that may impact a spouse when filing for bankruptcy. As with any bankruptcy it’s important to know what property you own and in what capacity. Married couples frequently own homes, cars and boats jointly.
Now, if one of these assets has too much equity in it then it may impact the non-filing spouse. If the debtor cannot exempt all of the equity in the asset then the trustee has the right to sell the entire asset, give the non-filing spouse her half and use the unexempt portion to pay back some of creditors.
If the non-filing spouse owns something in their name only then the bankruptcy will not have any impact on that piece of property. Therefore, it is important to establish how property is owned in order to determine how it may impact your spouse.
Household Income and Expenses
If only one spouse is going to file for bankruptcy, the bankruptcy Court will still look at the entire household’s income and expenses. This will require the non-filing spouse to turn over the paycheck stubs for the last six months in order to determine whether a the filing spouse is eligible for a Chapter 7.
If the non-filing spouse makes significantly more than the normal income limits of a Chapter 7 there are still ways to get a person qualified for a Chapter 7. By using the marital adjustment on the means test to include the non-filing spouses expenses, the household income can sometimes be lowered enough to qualify for a Chapter 7.
This process can become quite complicated and should be discussed with your attorney prior to filing.