Pros and Cons of Filing Bankruptcy Jointly With Your Spouse
Married couples who are financially distressed have a choice whether to file for bankruptcy individually or jointly. Generally, a joint bankruptcy is most beneficial for both spouses, but in some situations it makes sense for only one spouse to file while the other stays out of bankruptcy. Several factors should be weighed in deciding on which option will work best.
These are the most significant benefits to spouses filing jointly for bankruptcy:
- Efficiency and cost savings — A joint bankruptcy lets both spouses clear or reorganize their debts in one proceeding. One lawyer can represent both individuals. Having separate cases can entail paying higher legal fees and having to pay double in government filing fees. In addition, it would probably take longer to resolve two individual cases compared with a single joint petition.
- Disposing of all debts at once — The bankruptcy discharge will apply to all debts, whether jointly or individually assumed. Note, however, that in a community property state like California, even if a joint debt is discharged in an individual bankruptcy, the creditor can’t go after the non-filing spouse’s assets to seek satisfaction.
- Maximizing exemptions — If most or all of the couple’s assets are community property, then a joint petition is usually the best option, since California law provides generous exemptions that shield assets from creditors. On the other hand, if either spouse has substantial separately owned property, an individual filing may be more effective in protecting it.
There may also be reasons for not filing jointly, such as these:
- Chapter 7 eligibility issues — Chapter 7 bankruptcy filers must pass the means test, which determines whether they in fact have insufficient income to pay off some of their debts. If the couple’s joint income measured against debt would make them ineligible under the means test, the spouses may be forced to file individually or to have one spouse not file at all.
- Impact on credit for one spouse — If one of the spouses has incurred the greater amount of debt, it may make sense for only that spouse to file for bankruptcy. If the couple files a joint petition, both of their credit ratings will be impaired. If one spouse stays out of bankruptcy, his or her credit rating will not be affected.
The decision to file jointly or individually can also depend on other factors, which are best analyzed by an experienced bankruptcy attorney.
The Law Offices of Michael Jay Berger is one of Southern California’s most accomplished bankruptcy law firms, with attorneys in 12 offices across the region. If you or your spouse have financial problems and want to explore bankruptcy or other forms of debt relief, my firm can help. Feel free to contact us online or call 310-271-6223 to schedule an initial consultation.