Many couples have joint financial accounts, including credit cards, bank accounts, and retirement accounts. They also title their assets in both names. Therefore, many people incorrectly assume that if one spouse files for bankruptcy relief, the other spouse must also file bankruptcy.
The truth is that it does not matter if spouses have joint finances or they keep their finances separated, spouses can choose whether to file a joint bankruptcy case. If one spouse files for bankruptcy relief, the other spouse is not required to join in that bankruptcy petition. Before making a decision to file a joint or individual bankruptcy petition, spouses should consider several factors.
Do the Spouses Have Joint Debts?
If the majority of the debt is in the name of one spouse, the other spouse may not want to file bankruptcy. This preserves the spouse’s credit rating and allows the couple to obtain credit in the non-filing spouse’s name, if necessary. The main goal of filing bankruptcy is to receive a bankruptcy discharge. If a spouse doesn’t have debt that needs to be discharged, there may be no reason for the spouse to file a bankruptcy case.
However, if the debts are in the name of both spouses or if each spouse has debt that needs to be discharged, it is probably in the best interest of both spouses to file a joint bankruptcy petition. The filing fee is the same regardless of whether there is a joint debtor on the bankruptcy petition. Most companies that offer credit counseling and debt management courses charge the same fee whether it is a single person or a husband and wife. By filing a joint petition, spouses can save money. If each spouse files an individual petition, the cost of filing a bankruptcy doubles.
More importantly, if only one spouse files for bankruptcy relief, the other spouse becomes responsible for 100% of the joint debt that is discharged in the bankruptcy. For example, if the husband has $10,000 in credit card debt on a joint account with his wife, his liability will be discharged through his bankruptcy. His wife, who did not file for bankruptcy relief, is liable for the entire $10,000 debt. To protect spouses who have joint debt they cannot pay, both spouses should strongly consider filing a joint bankruptcy petition.
Furthermore, when both spouses file a bankruptcy together, each spouse is entitled to claim various bankruptcy exemptions. In some cases, this can be very important to protect assets. Depending on the situation, spouses can claim different exemptions to maximize the amount of equity they protect in various assets.
What Can Filing a Joint Bankruptcy Case Do for A Couple?
Filing for bankruptcy relief is not an easy decision. Most couples agonize for months deciding whether they should file a bankruptcy case. The decision to file a bankruptcy petition usually comes after months of struggling to find a way to pay bills while making ends meet. This can add an enormous amount of stress for the spouses. In some cases, the stress and worry can create problems at work, health issues, and marital problems.
Filing a joint bankruptcy can relieve the stress of dealing with debt problems in addition to getting rid of the debt. Couples can get a fresh start so they can begin recovering and rebuilding their finances after so many months or years of struggling. A clean slate allows couples to provide a better future for themselves and their families by using the information and skills learned in their debt management and credit counseling courses to improve their financial well-being.
Because each situation is unique, it is always best to consult with a trained, experienced professional who can help you determine if filing bankruptcy with our spouse is the best option for solving your debt problems. Careful consideration must be given to the entire financial situation, including the pros and cons of filing for bankruptcy relief.