Newlyweds & Bankruptcy
Learn about issues affecting you if you are recently married and considering bankruptcy.
If you recently got married, you now have the option to file a joint bankruptcy with your spouse to discharge your debts together. However, in some circumstances, being married can make it harder for you to qualify for Chapter 7 bankruptcy or protect all of your property. Read on to learn more about how being a newlywed can affect your bankruptcy.
Filing Jointly Can Save You Time and Money
For bankruptcy purposes, one of the main benefits of being married is the ability to file a single joint bankruptcy petition. A joint bankruptcy is normally more convenient because you get to wipe out all of your debts together in a single bankruptcy and you don’t have to attend separate hearings.
Filing jointly can also save you money because court filing fees are the same for an individual or joint bankruptcy. Further, most attorneys (if you decide to hire one) will charge a lot less for a joint bankruptcy than two individual bankruptcies because there is less work involved with a single petition. However, depending on your income, assets, and debts, filing a joint bankruptcy may not always be in your best interest (discussed below).
To learn more about making the decision to file bankruptcy jointly or separately, see Bankruptcy Considerations for Married Couples.
Being Married Can Make It More Difficult to Qualify for Chapter 7 Bankruptcy
In order to qualify for Chapter 7 bankruptcy, you must first pass a means test. The bankruptcy means test compares your income against the median income for a similar household in your state. If your income is below median, you automatically qualify. If it is above median, you have to disclose your expenses on the means test to see if you qualify. (Learn what the Chapter 7 means test is and how it works.)
If you are married, you must include both you and your spouse’s income on the means test form whether you are filing an individual or joint bankruptcy. This means that even if you want to file an individual bankruptcy without your spouse, his or her income will be taken into account to determine whether you are eligible for Chapter 7 bankruptcy.
Unfortunately, the median income for a two-person household is normally not twice that of a single person household. In fact, it is usually only slightly higher. This means that even if both you and your spouse make less than the state median for a single person, you may have trouble qualifying for Chapter 7 bankruptcy on your combined income. As a result, being married can make it harder for you to qualify for Chapter 7 bankruptcy even if you could have qualified individually prior to marriage.
Example. Brian and Susan just got married. Brian makes $30,000 and Susan makes $35,000 per year. Their state’s median income for a single person household is $40,000 and $55,000 for a two-person household. Prior to being married, both Brian and Susan could have qualified for Chapter 7 bankruptcy because their individual income is below the state median for a single person. However, since their combined income of $65,000 is above the median for a two-person household, they do not automatically qualify (whether filing jointly or individually) and must disclose their expenses on the means test form to see if they pass.
You might be able to deduct some of your spouse's expenses from your income if you are married but filing alone. To learn more, see The Marital Adjustment Deduction in Bankruptcy.
Being Married Can Make It Harder to Protect All Your Property
Exemptions allow you to keep a certain amount of property in Chapter 7 bankruptcy. If you are married and filing a joint bankruptcy, certain states allow you to double the amount of your exemptions to take into account the fact that two people usually have more property than a single person.
However, in some states, married couples are not allowed to double their exemptions when filing a joint bankruptcy. This means that you may not be able to exempt all property you own between you and your spouse if you file a joint bankruptcy and share the exemption amounts. As a result, if you can’t double your exemptions, it may be in your best interest to file separately and exempt your assets individually. However, exemption law is complex and varies by state so consider talking to a local attorney about your options before filing.
What If Only Your Spouse Has Debt?
Being married doesn’t mean you have to file for bankruptcy together. If only one spouse has debt, then usually there is no need for the other spouse to file for bankruptcy. As we discussed, the nonfiling spouse’s income still needs to be disclosed in the bankruptcy. But he or she will not be part of the bankruptcy filing and does not need to attend any hearings.
Further, the nonfiling spouse’s separate (not jointly owned) property will not be part of the bankruptcy. However, keep in mind that if you live in a community property state, you usually must disclose all assets owned by your nonfiling spouse in your bankruptcy for the trustee to decide if they are community property and part of the bankruptcy estate.
For more information on other things to consider before filing for bankruptcy, see the articles and Q&As in Should I File for Bankruptcy?