Deciding whether your spouse should join in your bankruptcy case requires a full understanding of your unique situation.
My last blog post explained that filing a bankruptcy by yourself immediately protects YOU from creditor collection activity but does not protect your spouse if he or she does not join in your Chapter 7 bankruptcy case. Similarly, any legal write-off (“discharge”) of debts applies only to the person(s) filing the bankruptcy. So any discharge of debts does not apply to your spouse if he or she does not either join you in your bankruptcy case or else files his or her own case.
That makes perfect sense—of course you don’t get the benefit of bankruptcy if you do not join in filing bankruptcy. But there are reasons why one spouse would not want to do so.
One Spouse Has Most of the Debts
Sometime one spouse is the only one individually liable on most of the debts. Or one may be separate liable on all or most of the debts except for being jointly liable only on the secured debts—their mortgage and/or vehicle loans. If the couple intends to keep paying on those, there is little motivation or need for the spouse who is only liable on the secured debts to join in the bankruptcy.
These situations can happen when one spouse incurred all the debt from operating a business that failed. Sometimes one spouse was simply the primary income source and/or the one with good enough credit to run accumulate debt. Maybe the most common situations are relatively new marriages into which one person has brought a lot of debts.
In these situations only the spouse whose debts would be discharged would directly benefit from a bankruptcy filing, so the other would sensibly be reluctant to be in a bankruptcy that appears to provide him or her no benefit. Indeed it could well be mutually beneficial if the one spouse not filing can hold on to a better credit record and help the other spouse rebuild his or hers.
The Other Spouse Has a Major Separate Asset
If the reluctant spouse separately owns something he or she absolutely does not want to lose, his or her reluctance to be involved understandably increases. The spouse may not even be willing to expose it to the bankruptcy process, even after getting strong assurances from a bankruptcy lawyer that the asset is protected by a property “exemption.” The more the asset is deeply personal—such as a family heirloom—or crucial to the person’s livelihood—such as tools of trade or a vehicle—the more extreme may be the reluctance.
There’s Almost Always a Decent Solution
Most of the time there is a way to meet the needs of both spouses.
There may genuinely be no dire need for the reluctant spouse to join the bankruptcy case. Even if there is a debt or two that he or she is legally liable on—either separately or jointly—paying those off may be worthwhile. That would depend on the debt amount and the benefit to that spouse’s credit record to continue paying those.
Or there may be a significant amount of joint debt, or debts owed by the reluctant spouse, resulting in a strong benefit for both to join in the bankruptcy. The assets may be well protected by exemptions, if the reluctant spouse is just given clear assurances by the attorney why there is no danger of losing whatever is precious to him or her.
And where there genuinely are assets at risk, or other reasons one spouse does not want to join in the other’s bankruptcy, there can be creative solutions. A Chapter 13 “adjustment of debts” by one spouse can often protect the other spouse through the “co-debtor” stay, allowing a co-signed debt to be paid ahead of other debts. A Chapter 13 filed by both spouses can protect the reluctant spouse’s assets with much less risk and much greater control than under Chapter 7. In rare circumstances one spouse can file a Chapter 7 case and the other a Chapter 13 one in order for each to meet their individual needs.
When both spouses are honest about their goals and concerns, an experienced and conscientious bankruptcy lawyer can usually find a sensible solution.