Married couples can file together in a joint bankruptcy that combines both spouse’s property and debts into the same bankruptcy case. Although filing a joint bankruptcy is often the right move, spouses don’t have to file as a unit. Ultimately, your decision will likely turn on which option allows you to discharge more of your debts and keep more of your property.
For instance, it’s not uncommon for a spouse who comes into a marriage with outstanding bills to file individually and keep the debt-free partner out of bankruptcy court—especially if it’ll allow the non-filing spouse to retain a good credit rating (a bankruptcy filing remains on a credit report up to ten years). In this article, you’ll learn about other factors to consider when determining whether an individual or joint filing makes more sense.
(You’ll find more information in Filing a Joint Bankruptcy Petition.)
Getting rid of debt is one of the foremost concerns when deciding whether to file a joint bankruptcy with your spouse. Through a joint bankruptcy, you can wipe out all of the dischargeable debts you both owe. However, if only one spouse files, the non-filing spouse is still on the hook for his or her own debts as well as any joint debts. So when you share many of the same obligations, filing a joint bankruptcy is usually the better option.
On the other hand, if you have few or no joint debts and your spouse has a lot of individual debts, the better course might be to let your spouse file alone. You’ll retain the option of filing for bankruptcy later on if necessary.
Special Note for Community Property State Residents: If you live in one of the few community property states, the calculation might be different. In many of these states (it depends on the particular state laws), community debts are discharged even if only one spouse files for bankruptcy, and discharged creditors cannot go after any community property so long as both spouses are alive and still married (known as a "phantom discharge" because the non-filing spouse also receives protection even though he or she did not receive a discharge). Conversely, you might 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?)
When you file jointly, you’ll include both you and your spouse’s assets and property in the bankruptcy (community and separate property). The decision to file a joint bankruptcy with your spouse will depend largely 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, you might be able to keep more of your property.
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 separate nonexempt property, your best option might be to file without your spouse to protect his or her assets.
Special Note for Community Property State Residents: If you live in a community property state, community property might 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.
(To learn more about bankruptcy exemptions and how they protect your property in bankruptcy, see Bankruptcy Exemptions by State.)
Some states exclude property held as tenancy by the entirety from the bankruptcy estate if only one spouse files. (Tenancy by the entirety is property jointly owned by a married couple as a single marital entity, not as two 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 for 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’ll be able to save a substantial amount of money by 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 significant amounts of financial information to the court and the bankruptcy trustee. You must also go to at least one hearing in front of the trustee, called the 341 meeting of creditors. If you file a joint bankruptcy with your spouse, you’ll go to the hearing together and provide only one set of bankruptcy documents. As a result, filing jointly with your spouse is usually more efficient and convenient than separate filings.
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 learn more about fixing your credit after a bankruptcy, check out Credit Repair.)