Married couples don't have to share everything. One spouse can file for bankruptcy protection without the other doing so as well. But sometimes the lines between separate and marital debt, income, and property are blurred. One spouse's bankruptcy can affect the non-filing spouse, especially in community property states.
Your Income Affects Your Spouse's Bankruptcy
If your spouse files for bankruptcy, the bankruptcy court will use your income to figure out if he qualifies for Chapter 7. Chapter 7 wipes out his debts if he doesn't have any income left over after paying his necessary bills each month to pay his debts as well. If your income helps support your household, your spouse's necessary bills decrease, because you're paying a portion of them.
This frees up some of your spouse's income for his creditors, so he might not qualify for Chapter 7. If your spouse files for a Chapter 13 bankruptcy repayment plan instead, he must give his creditors his excess income each month to pay down his debts. Your income into the household affects this as well. It frees up more money that he can give his creditors in a Chapter 13 plan.
You May Still Owe Joint Debts
If you and your spouse signed for joint debts together, his Chapter 7 bankruptcy usually only affects his responsibility for paying them. If you don't file jointly for bankruptcy with him, you must still pay these debts. His creditors can look to you for payment instead. Chapter 13 is different. Since he's repaying the debts in a Chapter 13 plan, his co-debtor - in this case, you - is safe from collection efforts from joint creditors.
Community Property Laws
In the nine community property states, spouses each have a full stake in ownership of their property, not a 50/50 share - at least not while they remain married. This can cause problems if your spouse files for Chapter 7 bankruptcy instead of Chapter 13. In a Chapter 7, his trustee sells your spouse's property to pay his debts. If only your spouse files for bankruptcy, the trustee will sell his separate property first - usually anything he owned before the marriage. The trustee can then liquidate community or marital property as well - which is equally yours. In other states, this is generally not the case. In a Chapter 13 bankruptcy, trustees don't sell property, so marital property would be safe in this case as well.
A Personal Bankruptcy Lawyer Can Help
The law surrounding marriage and personal bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.