Filing Bankruptcy for Married Couples

Filing for bankruptcy can be a difficult decision for any individual or family, but for married couples, the process can be even more complex. In this blog post, we will explore the options and considerations for married couples who are considering filing for bankruptcy. We will discuss the different types of bankruptcy available, the impact on credit and assets, and the potential consequences for both spouses. Whether you’re facing overwhelming debt or unexpected financial challenges, understanding the bankruptcy process can help you make informed decisions about your financial future. So, let’s dive in and explore the ins and outs of filing bankruptcy for married couples.

Married couples have the option to file bankruptcy either jointly together, or individually. After taking into consideration:

The value and type of property you have together and apart from each other
Exemption laws in your state determine what assets you are allowed to keep
Bills you owe both together and separately
Each spouse’s credit score
Your combined income (which must include both individual and joint cases, unless the spouses have separated)
Whether marital adjustment deductions taken to reduce income can help one spouse file an individual filing

Because the bankruptcy type you choose will also affect your decision-making process, start by learning about the bankruptcy release. It’s easier for the trustee and bankruptcy court to resolve property issues, which eliminates time-consuming hearings and streamlines the process.

Joint Bankruptcy Filings for Married Couples

A joint bankruptcy case is one where married couples can file a bankruptcy application together. Although it’s common for couples to file jointly it is not the best option for everyone.

Benefits

Both spouses can eliminate qualifying debt together by filing jointly. This includes debts they incurred together and bills that they are responsible for paying. A joint petition can also save money.

For individual or joint bankruptcy cases, the court filing fees are identical. However, if you file multiple cases, the filing fee will be doubled: $676 for two separate Chapter 7 cases and $338 for one single bankruptcy. Most bankruptcy lawyers charge the same amount to file jointly as for filing one case, or sometimes a few hundred more.

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Filing jointly is also more efficient and convenient. A married couple can only file one petition. This is significant given that an average petition is fifty pages long. Joint filers are required to attend the 341 meeting with all creditors. This mandatory hearing is where all debtors must appear. Then, they can discharge their qualifying debts by filing a single bankruptcy release. It’s easier for the trustee and bankruptcy court to resolve property issues, which eliminates time-consuming hearings and streamlines the process.

Drawbacks

Some states prohibit married couples from doubling property exemptions during a joint bankruptcy. These laws allow you to protect assets that you will need to live and work. You might not be allowed to protect as much property depending on the laws of your state. One spouse may have many nonexempt assets, which a filer cannot protect with an exemption. This property will be lost in Chapter 7 and must be paid through a Chapter 13 repayment plan. If filing jointly puts those assets at risk, it might not make sense.

If most of the debts are held by one spouse, the same logic applies. Joint bankruptcy filings can negatively impact the credit ratings of both spouses. It is better to keep one spouse’s credit rating so it’s still available after filing for bankruptcy.

Individual Bankruptcy Filings for Married Couples

Married couples don’t need to file for bankruptcy together. Sometimes it is more practical for one spouse to file. It can be difficult because filers must include both spouses’ income in each bankruptcy.

Benefits

People with very different financial circumstances may marry before realizing they have significant debt problems. One spouse may have a great credit rating and substantial assets before they get married. The other spouse might have significant debt and a 450 credit rating. They may also have a large amount of crafting supplies stored. This could be very valuable and wouldn’t be covered by bankruptcy. Individual bankruptcy can often wipe out qualifying debts of the spouse indebted without affecting credit or property.

There are other benefits, too. Some states do not allow joint filers to increase exemption amounts by more than one in a single petition. You might be able to protect more property in these states by filing two separate bankruptcies. Keep in mind, however, that if you reside in a state with community property, all marital (or community) assets become the property of the bankruptcy estate regardless of who is listed on the title.

Drawbacks

Filing two separate cases for bankruptcy relief will lead to higher court costs and attorney fees if both spouses have to file. In most cases, the bankruptcy filing of one spouse won’t provide any protection for the other spouse from creditors. There are exceptions.

Joint debts will protect the spouse who is not filing for bankruptcy. A creditor cannot pursue community property to satisfy the obligation of the non-filing spouse if one spouse has discharged a joint debt in community property states. This rule does not apply to any other situation, such as a spouse who has to pay a marital settlement agreement debt in their name. It’s not wise to assign responsibility if one spouse is likely to file for bankruptcy. Consult a family lawyer who is knowledgeable in bankruptcy law.

If a couple makes too much to qualify for Chapter 7, they won’t be eligible to bypass a Chapter 7 means testing failure. This is the test that you must pass to be eligible to receive a Chapter 7 discharge. One spouse can file a Chapter 7 case. This article will help you if you are experiencing this problem.

Married Persons Must Include Non-Filing Spouses’ Income

Many believe they can avoid a Chapter 7 qualification issue by filing only one spouse. But that is not true. A problem with income-related means tests will not be solved by an individual filing. Why? A married filing must include both spouses’ incomes in an individual bankruptcy if the spouses are not separated.

If you live in a household with a spouse who is not filing, the income of the spouse must be included on the means test. This can make it more difficult to qualify for Chapter 7.

Married Couples Can Qualify For Chapter 7

The means test considers that you may not use all of your spouse’s income for household expenses. You can deduct any income from a spouse who is not a filer that was used to pay for a household or separate debts.

Marital Adjustment Deductions

The marital adjustment deduction is not available for all expenses. Bankruptcy courts may have different views. Here are some examples of marital adjustment deductions that may be eligible:

Payroll deductions for your spouse who is not a filer, such as taxes, insurance, union dues, or retirement contributions
Payments your spouse makes on 401K loans
The non-filing spouse will be responsible for paying credit cards, student loans, and other individual debts
Car loan payments, car maintenance, and insurance, as well as other expenses, such as gas for your non-filing spouse
Alimony, child support, or any other support obligations from your non-filing spouse in another marriage or relationship
Payments for attorneys’ fees incurred by your non-filing spouse
Mortgage, home insurance, and any other expenses related to real property that are not owned by you or your spouse
Your non-filing spouse’s mobile phone expenses
Your non-filing spouse may pay for gym memberships, entertainment, or other recreational expenses. Courts will differ in determining what is permissible for recreation and entertainment.

Prepare to Document Marital Adjustment Deductions

Your bankruptcy trustee will ask for documentation proving that marital adjustment deductions made a difference in passing or failing the means test. You should be prepared to show it as support for any marital adjustment deductions that are claimed on the means test.

Don’t Let Debt Control Your Marriage – Let Us Help You Find a Solution

Filing bankruptcy for married couples can be complex. Learn about the options available and the potential impact on your assets and credit. At Bruner Wright, we understand the unique challenges that married couples face when navigating the bankruptcy process. Our experienced bankruptcy attorneys can help you understand your options and guide you through the process, protecting your assets and working to secure a brighter financial future for your marriage.

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Don’t let debt control your marriage – contact Bruner Wright today to schedule a consultation. Our team will work with you to understand your specific situation and help you determine the best course of action. We have the knowledge and expertise to navigate the complexities of bankruptcy laws, and we’re dedicated to helping you find a solution that works for you and your spouse. Don’t wait, take control of your finances and secure a brighter future for your marriage – reach out to us today.

Filing Bankruptcy for Married Couples