Non-Filing Spouses and Bankruptcy

Married couples are not required to file a joint bankruptcy when one spouse needs to file. Having one spouse file, and one spouse NOT file is completely permissible. However, the non-filing spouse will usually need to provide some information for the petition, even if they are not included. This is because the bankruptcy court considers household income when married spouses, living together, file a bankruptcy. The are also a few other things to consider when filing a bankruptcy for married couples, as well.

When a bankruptcy is filed, a means test must normally be completed to show household income for the six months previous to filing bankruptcy. This includes the income of non-filing spouses. Some of my clients will ask, "but, my husband/wife is not filing, why does their income need to be considered?" It does because, basically... bankruptcy law says it must be included. Congress determined in drafting the bankruptcy code that the ability of one spouse to repay the other's debt should be considered, so that is the law we need to work with, for better or worse. For that reason, I will need to 6 months of pay stubs for BOTH spouses. I will also normally need two years of tax returns for spouses, as well.

Once again, you need to be married for this to be the case. The income of fiancees or boyfriends/girlfriends does not need to be considered. Also, you must be living in the same household as your married spouse. If you are separated and keeping separate households, only the income of the filing spouse must be considered.

Non-filing spouses may also be important in determining the status of your property at the time of filing, and whether it can be protected from your creditors in bankruptcy. The bankruptcy exemptions normally allow filers to protect all of their property, but sometimes these exemptions can be exhausted. For instance, you are normally allowed to protect about $26,000 in equity in your home. This can be a problem in filing Chapter 7 bankruptcy if your equity exceeds $26,000. However, if you are married, and your non-filing spouse has a 1/2 interest in your home, your equity is essentially cut in half, because 1/2 of it belongs to the non-filing spouse. This makes it sometimes important to verify if both spouses are on a deed, and can sometimes be important with other exemptions. Therefore, sometimes we need to consider the property of the non-filing spouse.

Joint debts are also important to consider when one spouse does not want to file bankruptcy. Joint credit card debt, and car payments, are both considered "joint and several liability". This means a creditor can go after one spouse, both spouses, or neither spouse, when collecting a debt. And they can go after just one spouse for all of the money owed on a debt. This becomes important if there are numerous joint debts and only one spouse files a bankruptcy. While the filing spouse will have his or her debts discharged through the bankruptcy, the non-filing spouse will become entirely liable under joint and several liability. So, it is very important to determine who is on each debt, and for how much, because in some cases it will only make sense for both spouses to file jointly.

Contact us if you are trying to decide if filing bankruptcy jointly makes more sense, or if you are able to have only one spouse file. I'll happy to sit down and discuss your situation and see what makes more sense for your household.