The mental association that most of us have with filing for bankruptcy is that it is something that unmarried people do; in other words, if you are married, then you and your spouse are together for richer or for poorer, but if you are single, you can incur and discharge debts at will. Recently divorced people account for a significant portion of bankruptcy filers; it is as if filing for bankruptcy finally allows you to break free from your former spouse’s spendthrift ways. Federal law allows any adult to file for bankruptcy protection, regardless of age or marital status. Married people can and do file for bankruptcy. Like all major financial decisions in marriage, you and your spouse, with the help of a Monmouth County bankruptcy attorney, should work together to decide whether it would be more beneficial for both spouses or just one to participate in the bankruptcy case.
How Does the Bankruptcy Court View Marital Assets and Debts?
The first step in a bankruptcy case is to count your blessings; you are only going to bankruptcy court, not divorce court. At the end of this bankruptcy case, you and your spouse will still be living together in the marital home. In divorce cases, the court looks at every asset and every debt acquired by either spouse during the marriage and then divides them in the way it determines to be the fairest; this is called equitable distribution. Bankruptcy court works somewhat differently.
Debts that you incurred before you got married belong to you alone. Examples include credit card debts that got charged off and personal loans and private student loans that you defaulted on. If you opened a credit card account in your name only or took out a car loan for yourself alone, the bankruptcy court also considers this your separate debt.
In chapter 7 bankruptcy cases, the court also considers the assets you own; these assets become part of the bankruptcy estate, and the court decides which of them, if any, to sell in order to pay your creditors as part of the debt settlement. Assets which are considered necessities are exempt from liquidation. In practice, most consumers whose assets are of relatively modest value can get through chapter 7 bankruptcy without the court selling off any of their assets. Assets that are titled in your name only can be part of the bankruptcy estate whether you bought them before or after you married your spouse.
Should Both Spouses File for Bankruptcy or Just One?
In order to decide whether you will get the most debt relief from filing for bankruptcy alone or jointly with your spouse, you should look at your family’s overall financial situation. These are some reasons that a married person might file for bankruptcy alone, without the filer’s spouse participating in the bankruptcy filing:
- The filer does not want to jeopardize marital assets, such as the marital home.
- Most of the debts that the filer wants to discharge, such as medical bills or credit card debt, belong exclusively to the filer.
- The filing spouse wants to protect the credit score of the non-filing spouse.
These are some reasons that married couples decide to file for bankruptcy protection jointly:
- They own all of their assets and debts jointly and want guarantees from the court that the marital home and other jointly owned assets are exempt from liquidation.
- The debts that they need to discharge are marital, with both spouses signing for them and responsible for repaying them.
- Both spouses already have low credit scores, and neither spouse has more to lose than the other regarding the credit score consequences of filing for bankruptcy.
Every family’s financial situation is unique. If you are considering filing for bankruptcy, you should start by being honest with your spouse about all your debts and financial problems, if your spouse does not already know about them. Then you should both meet with a lawyer to discuss what the long-term and short-term consequences will be if only one spouse files for bankruptcy or if you both file for bankruptcy together.
Contact an Experienced New Jersey Bankruptcy Lawyer
You have the right to file for bankruptcy, regardless of your marital status, and your spouse does not have the right to stop you from filing. Jonathan Goldsmith Cohen has helped thousands of clients, married and unmarried, successfully apply for chapter 7 and chapter 13 bankruptcy. Contact Jonathan Goldsmith Cohen to discuss your case.