Filing for bankruptcy is no easy decision, but in a marriage, bankruptcy is complicated by whole new financial and legal considerations. But do couples necessarily have to file for bankruptcy together? Since this question still perplexes a lot of married couples, in this article we are going to talk about joint filing and answer the question whether this is mandatory for married couples, along with some other useful facts.
How Bankruptcy Works
To understand the question, first, you need to know a few basics of how bankruptcy works. In most cases, debtors are given a choice to file for either Chapter 7 or Chapter 13 bankruptcy. In Chapter 7 bankruptcy your debt to the creditors is repaid by selling your unprotected assets and creating a reorganization plan. If you follow all the rules, your case will be discharged in less than a year. With Chapter 13 bankruptcy you are allowed to keep your assets but you have to make monthly payments to the debtors. Chapter 13 cases are usually discharged after 3 to 5 years.
Married Couples Filing for Bankruptcy
A lot of married couples come to bankruptcy attorneys in California with the same question: Do we have to file for bankruptcy together or can only one of us file? The answer is that spouses can file for bankruptcy individually. However, married couples still choose to file together as joint bankruptcy provides numerous financial benefits. But whether you’ll file for bankruptcy together or individually depends on several factors.
When to File Together?
Sometimes filing jointly can have great benefits for the spouses. In this case, their individual assets all fall under the same bankruptcy estate as do their debts. If both spouses have debt they need to settle, filing jointly means they will only fill in one form and therefore only have to cover a single filing fee and in most cases a single attorney’s fee. Since California is a community property state, all the debts and assets spouses acquired during the marriage are treated community property. Therefore, the joint filing will help them resolve any individual issues as well as joint ones. In some states, couples file jointly because state laws allow double exemptions. However, in California, married couples do not have this benefit unless certain exemptions allow it expressly.
When to File Separately?
When filing for bankruptcy separately, all your individual property is part of the bankruptcy estate. When the other spouse has a lot of individual assets you need to protect, filing individually is the preferred option. Furthermore, if one partner carries most of all of the debt and you were recently married, filing separately is a good idea. This will allow the partner without debt to preserve their credit score.
In some cases when spouses own real estate together, filing separately will exempt the property from the estate which can help you keep your home.
The bankruptcy process is complicated and there’s simply no right answer to whether you should file for bankruptcy together or separately. If you’re having this dilemma, it’s best to consult an experienced bankruptcy attorney so they can weigh the pros and cons and suggest the right move for you and your partner.