There are many reasons why a married person might wish to file bankruptcy without their spouse. This is absolutely legal and may even be a good strategic move for some families.
Here’s what you need to know.
What happens when only one spouse files for bankruptcy?
The automatic stay still applies to all debts covered by the bankruptcy. Collection calls and actions such as lawsuits or repossessions should stop while the bankruptcy case is open.
Your spouse’s income also gets counted for the purposes of assessing your income under the Chapter 7 means test, regardless of whether or not your spouse is filing for bankruptcy with you.
Otherwise the bankruptcy case does proceed as normal.
What are the advantages of leaving one spouse out of a bankruptcy?
If your bills and your credit are pretty separate then you might file for bankruptcy alone to avoid damaging your spouse’s credit. This means the spouse may be able to take out a mortgage or buy a car in their name while you are rebuilding your credit after a bankruptcy.
While bankruptcy is likely to bring your credit score up it will bring your spouse’s down if they do not currently have all the same past due items open on their own accounts.
When does it make sense for both spouses to file for bankruptcy?
If most of your debts are in both of your names then there aren’t a lot of advantages to filing separately. Joint debts won’t get fully discharged, and discharge is what you want in a bankruptcy case.
The legal status of your entire debt and asset profile may not be as clear cut as you think it is. Issues such as whether or not the debt is “in your name” or not may not matter if the spouse’s income was considered when a lender was trying to decide whether to give you the loan. It is important to go over your assets with an attorney prior to proceeding.
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If you are contemplating bankruptcy you will need legal help from an experienced attorney who can steer you in the right direction. It’s our job to help you choose the right bankruptcy chapter, to help you determine if filing with your spouse is appropriate, and to help you protect as many of your assets as possible during the bankruptcy process.
Reach out to our offices to schedule a free consultation today.
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