Let’s be honest. When it comes to bankruptcy, there may be a lot you just don’t know. Bankruptcy is complicated. And it gets even more complicated when you’re married and have separate debt from your spouse. So, it’s natural to have a lot of questions. That’s where we come in. We recently answered the question “Can one spouse file for Chapter 13 and not the other?” but this is just one option married couples have when considering bankruptcy. Another common question we’re asked is, “Can one spouse file Chapter 7 and the other Chapter 13?” We will address this question and more throughout this article.
Can One Spouse File Chapter 7 and the Other Chapter 13?
The short answer is YES. However, before we get into the specific details, let’s first take a closer look at these two chapters of bankruptcy. After all, Chapter 7 and Chapter 13 bankruptcy are very different.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as the “liquidation chapter,” can be a very useful tool to give you a financial restart or fresh start. Generally, no payments are made to your creditors and the process typically lasts 4-6 months, considerably shorter than a Chapter 13 plan. Chapter 7 can eliminate your credit card debt, personal loan debt, and more. Here are a few scenarios where Chapter 7 can be helpful to you.
- If you are behind on credit card bills;
- If you are behind on medical bills;
- If you have lawsuits or judgments against you;
- If your wages are being garnished or about to be garnished;
- If you bank account is frozen due to a judgment or a set off;
- If you have a judgment lien against any property that you own;
- If you are behind on your homeowner’s association or condo association dues;
- If you are behind on your car payment and would like to walk away from the car.
In the majority of Chapter 7 cases you can keep your car and your home, which are generally secured by a loan such as a car loan or mortgage or otherwise able to be protected in bankruptcy.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is another very common type of bankruptcy and a very helpful tool for reorganizing your debts and getting a fresh start. Chapter 13 is more powerful than Chapter 7 and can be used for individuals to pay back mortgage arrears, tax debt, and certain other kinds of secured and priority debt over a 3-5 year payment plan. Chapter 13 is also useful for individuals who have unprotected equity in a home, or other valuable assets that a Chapter 7 trustee may seize, sell, and then distribute the funds to creditors. Here are a few examples of when a chapter 13 bankruptcy can be helpful:
- If you behind on your mortgage and the mortgage company refuses to accept anything less than the full amount owed and will not do a loan modification;
- If you are behind on your car payments and the finance company wants to repossess your car;
- If you have many liens on your home and your home does not have any equity;
- If your car payment is high and you wish to lower it;
- If you owe taxes and would like to pay them back over time;
- If you owe child support or alimony and want to pay them back over time;
- If you have certain kinds of debts that are not dischargeable in a Chapter 7;
- If a friend or family member co-signed on a loan with you and you would like to protect them from creditor action.
The amount of the Chapter 13 payment depends on many factors, including income and expenses, unprotected equity in real and personal property, and ensuring that the plan funding is sufficient to pay back required secured and priority debts.
Why Spouses Would Want to File Separately
Because Chapter 7 and Chapter 13 are so very different, there are certain circumstances when it makes sense for spouses to file separately. Even if you qualify to file jointly for Chapter 7, there may be additional benefits for one of you to file Chapter 13. Here are just a few examples:
- One spouse owns a home and they’re behind on the mortgage. Only that spouse has to file Chapter 13 to catch up on the mortgage arrears.
- One spouse has a lot of credit card debt and the other owes back taxes and/or child support. The spouse with credit card debt can file a Chapter 7, and the spouse with tax and/or child support debt can file Chapter 13 to pay that back over 3 to 5 years.
- One spouse has a high interest rate car loan, and in Chapter 13, you can change the terms of a car loan and lower your monthly car payment. You can’t do that in Chapter 7.
- One spouse owes a home with no equity with judgment liens, tax liens, and homeowner’s association liens. You can get rid of certain liens in Chapter 13 that you can’t in Chapter 7.
So, can one spouse file for Chapter 13 and not the other? Or, can one spouse file Chapter 7 and the other Chapter 13? Absolutely! But the question you should really be asking yourself isn’t CAN we file for bankruptcy separately, but rather SHOULD we file separately? And that really depends on your unique situation. After all, bankruptcy is complicated. So, it is best to contact Steiner Law Group to determine whether filing bankruptcy with or without your spouse makes the most sense for you. We can help you understand the bankruptcy process and evaluate your options so you can make the best choice for you and your family.
An Experienced Bankruptcy Attorney in Maryland
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 7 or Chapter 13 bankruptcy, please schedule a risk-free consultation or contact Steiner Law Group, LLC at (410) 670-7060 to learn more about bankruptcy options.