An important decision married couples need to make before filing for bankruptcy is whether they should file an individual or joint case. Either spouse may have debts alone, or debts may be shared. Debt type and other issues can impact the decision of what type of bankruptcy petition to file.
Look at the advantages and disadvantages of joint and individual bankruptcy, and get help from a bankruptcy attorney to make the best decision for both of you.
Joint Bankruptcy and Advantages
In joint bankruptcy, spouses can share much of the work and documentation that would be needed for separately filed cases. Spouses file a joint petition and schedules (lists documenting your finances).
While a couple may file a joint petition, they still have separate bankruptcy estates. When someone files a case, generally his or her property forms the bankruptcy estate. An individual keeps some property, which the law exempts or protects from creditor claims. The object of the case is to resolve debt issues, including using the bankruptcy estate to pay creditor claims.
Spouses' cases, and their bankruptcy estates, can be consolidated (joined and treated as one) by the court, too. Spouses may object to this because it's best for them to keep their cases separate, depending on each spouse's debts and nonexempt property. For example, consolidation can mean a spouse with lots of nonexempt property faces use of his or her assets to pay the spouse's creditors.
Joint Bankruptcy Petition Advantages
It's usually preferable to file a joint bankruptcy petition for these reasons:
- Bankruptcy costs. The fees to file either jointly or separately are about the same. If your spouse files for bankruptcy separately, you'll be paying the fees again
- Joint debt. Joint bankruptcy gives spouses the best protection for joint debt. If a spouse is a codebtor and doesn't file for bankruptcy, creditors can likely pursue that spouse for payment
- Efficiency. The amount of work needed to file a joint bankruptcy is half as much as when you and your spouse file separately
Joint Bankruptcy Petition Disadvantages
There are several valid reasons for not filing for joint bankruptcy. One obvious reason is that your spouse does not want to file for bankruptcy. But, there are a few situations when a joint bankruptcy may be a bad idea or just isn't available:
- Your spouse can't file due to a prior bankruptcy
- You and your spouse jointly own property valued above federal exemption levels, and your state's debtor/creditor laws give you needed protection for select assets such as your home
- One spouse can't file for Chapter 7 due to fraud and concealment issues that may prevent debt discharge
Chapter 13 bankruptcy won't work on a joint basis because one spouse has a large priority debt or debt that exceeds Chapter 13 limits
- State community property laws override the need for a joint bankruptcy petition. In some states, nearly all community debts and community property (i.e. any property or debts acquired during marriage) will be affected by a spouse's bankruptcy
Joint Petition Planning
Decide on a joint petition before either you or your spouse file on your own. A court may not let you add your spouse later on. When spouses file separate petitions close in time, the next best option may be to ask the court to order joint administration of your cases.
Looking at your combined income and required means testing can also affect your filing decision. You may find filing alone gives you more options for bankruptcy relief. What is best for you and your spouse depends on your facts and finances. A bankruptcy lawyer can best help you sort through the options, and you and your spouse can make the best decision for you.
Questions for Your Attorney
- If we file for bankruptcy, will all our property be affected?
- How does my spouse's bankruptcy affect me if all of our finances are separate?
- Given our circumstances, is it better to file bankruptcy jointly or separately?