How Does Bankruptcy Work if You Are Married?
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If you are married, you will have to decide whether you want to file for bankruptcy jointly or if only one of you is going to file for bankruptcy.
In a Chapter 7 bankruptcy, you can file for bankruptcy without your spouse and it would not bring your spouse into bankruptcy; however, the protection of the legal elimination of debt that the person who files is under, will also not extend to the spouse who did not file for bankruptcy, neither will the prohibition of collection against property.
Therefore, if you are jointly responsible for any debt, although the filing spouse will be protected, creditors can still go after the non filing spouse. If you both signed for loans on your home, credit cards, line of equity and so on, you both will be liable for that debt. But if only one person signed any of these contracts, then marriage alone does not make both spouses personally liable for this debt.
Taxes
If you filed a joint tax return you are jointly liable for the total tax due. Joint debts will be noted on the credit record of the non-filing spouse when filing for bankruptcy.
One of the most critical issues for bankruptcy filing is joint property. Your jointly owned property may be included in the bankruptcy estate and therefore possibly available to pay creditors. In states with community property jurisdictions both halves of the property become available to pay creditors of the spouse who has filed.
Communal Property
For all other communal property in states with community property jurisdiction, the marital community enjoys the protection of the filing spouse’s bankruptcy discharge. A creditor with a claim against the non filing spouse can only collect its debt from the separate property of the non filing spouse. The definition of separate property varies from state to state but typically describes assets acquired before marriage, as gifts during marriage or by inheritance.
Credit Reports
Bankruptcy filing will also affect credit reports. Each person has their own credit file, so if the person who does not file has good credit and there are no joint debts, the filing of the other spouse should not affect the non filer’s credit rating. However, bankruptcy of one spouse will impact the credit worthiness of the non filing spouse if they apply jointly in the future for a loan. The loan grantor will consider the credit rating of both applicants before making a lending decision.
