Filing Chapter 7 Bankruptcy: Single Or Joint?
It's not always about who created the financial issues that prompted the bankruptcy. That is because the way the law looks at bankruptcy varies by how your property and debts are held and your state of residency. To find out more, read on.
Who Owns a Debt in Bankruptcy?
Since filing chapter 7 gets rid of almost all debt, how does a single filing affect the non-filing spouse and their debt burden? Any debts acquired after the date of the marriage may be considered joint debts in some states (community property). In those states, it doesn't matter who is responsible for the debt because it is said to be owned by the community (the couple) 50/50. If one party files bankruptcy and the other does not, the filing party is eligible to have 50% of the debt discharged.
If the parties live in a common-law state, however, the party with their name on the debt can have the entire debt discharged and the non-filing party is left with the debts in their name only. If the couple has joint debts, the way the debt is treated depends on whether they live in a community property or common law state. In a community property state, 50% of the debt can be discharged. In a common-law state, however, the way the debt is handled depends on who benefited from it, who applied for it, and more.
Chapter 7 Bankruptcy and Assets
Bankruptcy is not just about debt. Chapter 7 is also known as the liquidation filing because the court has the power to seize certain assets. When they do, the asset can be sold and the proceeds can be used to pay bankruptcy administrative costs, the trustee's salary, and certain high-priority creditors. Filers can keep property that falls inside state exemptions, though. For instance, some states exempt a primary residence from seizure. For bankruptcy purposes, any property acquired after the date of the marriage, inherited, or gifted is owned by that party only and is not part of the bankruptcy. Everything else is marital property.
In a community property state, everything the couple owns is part of the bankruptcy and is subject to seizure even if only one party files. In a common-law state, however, the property is divided based on who purchased the property, used it, and the name on the property. It's also worth noting that couples filing bankruptcy jointly, in some states, can double their exemptions.
As you can see, the decision to file singly or jointly is a complex one and best discussed with a bankruptcy attorney. Find out how your state deals with your spouse's assets and debts and get started on your financial fresh start.
