Should I File a Joint Bankruptcy With My Spouse?
Married couples have the option to file a joint bankruptcy, but sometimes it's best for one spouse to file alone. Learn more about it.
Married couples are allowed to file bankruptcy together with one petition -- this is called a joint bankruptcy. Filing jointly means that your combined property and debts are all part of the bankruptcy. In many cases, filing a joint bankruptcy makes sense. But sometimes you might be better off filing alone. (To learn more about joint bankruptcy, see Filing a Joint Bankruptcy Petition.)
Here are some of the things to consider when determining whether you should file a joint bankruptcy with your spouse. In essence, your decision will likely turn on which option allows you to discharge more of your debts and keep more of your property.
Which Debts Are You Trying to Wipe Out?
This is one of the foremost considerations in whether you should file a joint bankruptcy with your spouse. Through a joint bankruptcy, you can wipe out all of the dischargeable debts you and your spouse owe. However, if only one spouse files bankruptcy, the non-filing spouse is still on the hook for his or her own debts as well as any joint debts. So if you have a lot of joint debts, filing a joint bankruptcy is usually the better option. (To learn which debts are joint and which are individual, see Separate and Community Property During Marriage: Who Owns What? )
On the other hand, if you have few or no joint debts and your spouse has a lot of individual debts, then it may not be in your best interest to file a joint bankruptcy. In that case, your spouse can file alone to wipe out his or her own debts. This way you (the non-filing spouse) have the option to file bankruptcy later on when you really need it.
Special Note for Community Property States: If you live in one of the few states that has "community property," the calculation may be different. In many of these states (it depends on the individual laws of each state), community debts are discharged with respect to any community property, even if only one spouse files for bankruptcy. This means that the discharged creditors cannot go after any community property so long as both spouses are alive and still married. This is also known as a "phantom discharge" because the non-filing spouse also receives protection even though he or she did not receive a discharge. So filing individually or jointly may provide the same benefit in effect. On the flip side, you may lose more property in these states if you file individually (see below).
To find out if you live in a community property state, see Separate and Community Property During Marriage: Who Owns What?
How Much Property Do You Own?
When you file jointly, both you and your spouse’s assets and property are included in the bankruptcy. This includes all joint property and all separate property either of you own individually. The decision to file a joint bankruptcy with your spouse also depends on whether you have enough exemptions to protect all of your property. If you live in a state that allows married couples filing jointly to double exemptions, for example, you may be able to hang on to more of your property. (To learn more about bankruptcy exemptions and how they protect your property in bankruptcy, see our Bankruptcy Exemptions area.)
If you file an individual bankruptcy without your spouse, his or her separate property is not part of your bankruptcy. So if your spouse has a significant amount of nonexempt separate property, your best option may be to file without your spouse in order to protect his or her assets.
Special Note for Community Property States: If you live in a community property state, community property may be up for grabs in the bankruptcy even if only one spouse files for bankruptcy. Find out the law in your state or consult with a local bankruptcy attorney before you file.
Property Held as a Tenancy by the Entirety
Some states exclude property held as tenancy by the entirety from the bankruptcy estate if only one spouse files. (If property is held as a tenancy in the entirety, it means the property is jointly owned by a married couple as a single marital entity, not as individuals.) If you live in one of these states and you hold your home or another large piece of property as tenancy by the entirety, you may be able to protect the home or property if only one spouse files for bankruptcy. If you file jointly and the homestead exemption doesn't cover your equity, you might lose your home.
Filing bankruptcy usually involves paying a filing fee to the court and paying an attorney if you decide to hire one. By filing a joint bankruptcy with your spouse, you will be able to save a substantial amount of money over filing two individual bankruptcies. First, the court filing fees are the same for both individual and joint bankruptcies. Second, attorney fees for a joint bankruptcy will usually be a lot cheaper than for two individual bankruptcies.
When you file bankruptcy, you must provide a lot of financial information to the court and the bankruptcy trustee. You must also go to at least one hearing in front of the trustee. If you file a joint bankruptcy with your spouse, you will go to the hearings together and provide only one set of bankruptcy documents. As a result, filing jointly with your spouse is usually more efficient and convenient than both of you filing separately.
Effect on Your Credit
If you file a joint bankruptcy, it will be reflected on both of your credit reports. Even though bankruptcy has a negative effect on your credit initially, most people’s credit scores tend to increase shortly after the bankruptcy. However, if you have good credit and your spouse needs to file bankruptcy primarily for his or her own debts, then it wouldn’t be in your best interest to file jointly and take the hit to your credit. (To learm more about fixing your credit after a bankruptcy, check out Nolo's section on Credit Repair.)