Navigating your personal finances can be tricky business. And this is only compounded when you are married and managing some debt separately and others jointly. It’s enough to make your head spin. So, what happens when you and your spouse find yourselves struggling to manage your debt? Well, in that case, Chapter 13 bankruptcy becomes a very real possibility to help you get back on track. This powerful tool allows you, to enter into a 3 to 5 year plan to repay some or all of your debt. Unlike Chapter 7 bankruptcy, Chapter 13 is designed to help you keep assets, like your home, even if you are behind on your payments. At the end of the plan, remaining debts are discharged and you are free to begin rebuilding your personal finances. But what if it is only the husband or wife that is unable to keep up with their payments or has a lot of the debt? Can one spouse file Chapter 13 and not the other? This is actually a question we are asked pretty frequently.
Can One Spouse File Chapter 13 and Not the Other?
You may be surprised to learn that the answer is Y-E-S. You can file for Chapter 13 without your spouse. However, Chapter 13 works a little differently if only one spouse files, and determining whether you are better off filing jointly or as an individual depends on the specific situation. It is best to consult with an experienced bankruptcy attorney to determine what makes the most sense for you and your spouse.
Reasons to File Without Your Spouse
- Separate Debt: If you were recently married and all of your debt is separate (premarital debt), then it may make sense to file for Chapter 13 without your spouse. Also, if you and your spouse have a prenuptial agreement, your spouse may not be not liable on any of your debt. Finally, Maryland is not a “community property” state. In a community property state, secured and unsecured debt incurred during the marriage by one spouse is considered community debt even if the spouse is not a co-signer.
- Your Spouse is Ineligible: You may need to file for Chapter 13 without your spouse if they are ineligible to file if they are over the debt limit, if their non-dischargeable debts are high (example – child support or alimony) or if they had a prior bankruptcy within the past few years and are not eligible for a discharge at this time.
- Nonexempt Assets: It may make sense to file for Chapter 13 without your spouse to protect their nonexempt assets that are not owed by both of you.
- .Credit Score: It may make sense to file for Chapter 13 without your spouse if they have a good credit score. This will allow you to make larger credit purchases as a couple if needed.
- Will Beneficiary: It may make sense to file for Chapter 13 without your spouse if they are listed as a beneficiary in a will for a relative that may pass away in the next 5 years.
How it Works
When one spouse files for Chapter 13, only their name and social security number appear on the bankruptcy petition. The other spouse’s information does not. However, the non-filing spouse’s income must be disclosed and used in the means test calculation to determine the length of the bankruptcy, 3 or 5 years. Your non-filing spouse’s income is also used to determine disposable income which affects how much you pay your creditors. In cases of separation, where the non-filing spouse does not live with the filing spouse, the non-filing spouse’s income does not need to be used.
Your Spouse’s Credit
As we mentioned above, this is one of the reasons some people decide to file for Chapter 13 without their spouse. Filing for Chapter 13 separately will not affect your spouse’s credit. The bankruptcy filing will appear on the filing spouse’s credit report only and should not appear on the non-filing spouse’s credit report. This is a good strategy when you don’t have joint debts and your spouse doesn’t need financial relief from separate obligations. Filing separately preserves your spouse’s good credit for larger credit purchases down the road.
Your Spouse’s Individual Debts
When one spouse files for Chapter 13 without the other, only the debtor’s individual debts are affected. Your spouse will remain responsible for their own financial obligations. Their debts are not affected by the Chapter 13 bankruptcy
Your Joint Debts
When you file for Chapter 13 bankruptcy, the automatic stay takes effect, which prohibits all collection activities against you and is one of the most powerful benefits of bankruptcy. This gives you some breathing room from collections to devise your 3 to 5 year Chapter 13 payment plan. When one spouse files for Chapter 13 without the other,unlike Chapter 7, the automatic stay actually stops creditors from coming after the co-debtor as well. However, if the joint debt is not included in the payment plan, the creditor can petition the court to lift the co-debtor stay to collect against your non-filing spouse
Your Tax Refunds
In Chapter 13, tax refunds are typically handed over to the Chapter 13 Trustee, because all disposable income goes into the payment plan. However, when one spouse files for Chapter 13 without the other, joint tax refunds are handled a little differently. The non-filing spouse’s share of the tax refund does not have to be turned over to the Trustee as long as you’re not in a community property state, which Maryland is not. In a community state, the joint tax refund is part of the bankruptcy estate and must be turned over to the Trustee.
Filing for Chapter 13 Jointly or Separately
So, the question isn’t really can one spouse file for Chapter 13 and not the other? Instead, the question you should ask yourself is SHOULD one spouse file for Chapter 13 and not the other? To answer that question, it is best to consult an experienced bankruptcy attorney. After all, Chapter 13 bankruptcy is a complicated process. Steiner Law Group can help you understand the bankruptcy process, evaluate your options, and let you know how much of your disposable income will need to be allocated to pay nonpriority unsecured creditors. Steiner Law Group is a boutique law firm in Maryland that assists individuals and businesses with bankruptcy and financial restructuring services. We have helped hundreds of individuals, families and businesses discharge millions in debt. If you have more questions about Chapter 13 bankruptcy, please schedule a risk free consultation or contact Steiner Law Group, LLC a Baltimore, Maryland law firm at (410) 670-7060 to learn more about bankruptcy options.