Debt problems cause stress for the entire family. One of the common concerns is how will bankruptcy affect my spouse if I declare personal bankruptcy? Do creditors pursue your spouse? Will it affect their credit rating?
Decisions on finances are very important in a marriage, and communicating how to deal with these situations is one of the keys to a healthy marriage. It is essential to understand the effects this decision has on a significant other.
A married person in overwhelming debt, and who has to file bankruptcy, starts wondering if bankruptcy should be filed with or without the spouse. They worry about how their decision impacts their family, and are especially worried about its implications on his or her spouse and their credit report.
Can I File Bankruptcy Without My Spouse?
Yes, you can file for bankruptcy without your spouse. There is no legal requirement that you have to file together. Many times, couples have kept finances separate so there may not be any joint debt between them.
You do need to note however, that you must include your spouse’s income on the means test and also reflect their income and expenses in your household budget.
Wanting to protect a spouse from the harsh outcomes of your bankruptcy proceedings is normal. A big part of doing that is understanding your finances and specific debt situation.
To understand how bankruptcy will affect your spouse, it is important to understand the difference between joint debt and personal debts.
Your bankruptcy only affects your debts. As long as your debts belong solely to you, then claiming bankruptcy should have no impact on your spouse or their credit rating, but sometimes the answer is not quite that simple.
If your spouse has not co-signed or guaranteed any of your debts then those debts belong solely to you. However, if they have guaranteed or co-signed any of your debts, those debts are no longer just yours. Now your spouse will become fully liable if you file for bankruptcy. Your creditors will pursue your spouse for full payments, even though your bankruptcy will eliminate your responsibility to repay the debt.
Will filing for bankruptcy affect my spouse’s credit?
As long as you do not have JOINT debt, your filing bankruptcy will not affect your spouse since this is not their debt, it it your debt.
Chapter 13 bankruptcies have a safety net clause called the “co-debtor stay”. This clause protects a co-debtor who doesn’t file for bankruptcy.
The clause prohibits creditors from pursuing co-debtors, like the non-filing spouse, during bankruptcy. However, the creditors can approach the court and ask them to lift the stay if the joint debt isn’t repaid through the filing spouse’s Chapter 13 repayment plan.
What happens to our joint property?
Filing for bankruptcy won’t affect any property the non-filing spouse individually owns. However, if they have joint assets, the bankruptcy effects depend on whether the couple lives in a common law property state or a community property state.
Common law property states
In case of couples living in common law property states, all individual assets and the spouse’s share of interests in any jointly owned properties (usually 50% unless otherwise specified), are considered to be part of their bankruptcy estate. Any property the non-filing spouse owns in his or her name is usually not at risk.
In case of a Chapter 7 bankruptcy, the bankruptcy trustee CAN sell the entire jointly owned asset if the property is indivisible and the filing spouse can’t exempt their share of interests. In case the property is sold, the non-filing spouse receives the value of their interest in the property. The filing spouse’s portion of the non-exempt proceeds will then be used to repay his or her creditors. This is an area that is very important and requires experienced legal counsel to review to ensure that your filing Chapter 7 bankruptcy does not force the sale of your property.
Community property states
In the case of community property states, most assets, and income earned by either spouse during marriage, is considered to be community property. With both spouses owning equal shares on the property, the property is considered to be their bankruptcy estate’s property and can be used to repay their debts. So filing for bankruptcy can affect the non-filing spouse if most of their joint assets are community properties.
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ABOUT SAEDI LAW GROUP: Founder and managing attorney Lorena Saedi started her legal career with a big law firm in Atlanta practicing corporate law and representing large corporations. Although she enjoyed the challenging legal work, she realized that she would rather be working directly with people as opposed to large corporate legal departments. After a short stint in a large bankruptcy law firm in Atlanta, Lorena founded her own firm and the rest is history.
After seeing how client’s cases were serviced at the large “bankruptcy mill” firm, Lorena decided to start her own firm and focus on provided personalized service. Since 2002, Lorena has been helping Georgia consumers get a fresh financial start and providing exceptional client service to her clients.
Over the past 22 years, Saedi Law Group has grown to a mid-sized law firm. Our goal is to continue to provide exceptional client service and ensure that our client’s Chapter 7 and Chapter 13 cases are a success. Clients work with the attorney they meet with from start to finish. If a client has any questions or problems in a case, they can immediately meet with their attorney (not a paralegal) to ensure that the matter is resolved.
So why choose Saedi Law Group to handle your bankruptcy case? We truly love what we do and we do it with passion. We value our clients and understand what they are going through. Helping clients rebuild their financial life gives us purpose. We see bankruptcy law as a positive way to use the law to help people get back on their feet financially and build a new life.
Find out more at https://georgiabankruptcylawgroup.com