If both you and your spouse have matching debt, you may decide to declare bankruptcy together. But if only one of you has debt, the choice becomes a little more complex. Joint bankruptcy has both advantages and disadvantages. The best choice for you is determined by your situation.
Who Owns Your Debts?
Consider a situation in which one of you has a credit card that they had prior to the marriage. Declaring bankruptcy on their own will wipe out this debt. If you have a credit card that's in both of your names, declaring bankruptcy solo isn't going to help because the other spouse is simply going to end up on the hook for the entirety of the debt.
This is because, in general, joint debt is considered to be jointly and severally liable. That means that each person isn't responsible for 50 percent of the debt. Both parties are both entirely responsible for ensuring that the debt is paid.
Separate cases are sometimes options for those who are in community property states.
Who Owns Your Property?
Bankruptcy liquidates your assets to pay your debts. If one spouse owns a lot more property than the other, they may not want to declare bankruptcy as well. However, don't think of this as a loophole. The law doesn’t allow you to sign over property into your spouse's name and then declare bankruptcy. That would be considered bankruptcy fraud.
In general, any preparatory financial action you take before bankruptcy to hide assets or move around debts is going to be considered fraud. This is also why you cannot simply sign over all your debts to your spouse and have them declare bankruptcy in lieu of you.
Do You Need a Good Credit Score?
Think about your financial future. There can be some advantages to having one spouse with good credit and without a bankruptcy on their mark. If you can get into a better situation by filing on your own, your spouse will be able to come out of the process unscathed.
However, this is only important if you are going to procure additional credit. For instance, though a spouse might be able to qualify for a mortgage loan with their untarnished credit score, they would also have to qualify based on income as well.
Thus, only one spouse filing bankruptcy is only a good idea if one spouse has good credit, has a solid income, and does not need to wipe out their current debts.
What Type of Debt Do You Have?
The type of debt can matter. Medical debts, for instance, are always considered to be joint debts in some states. Tax debts will also be considered joint if the individuals in question filed joint tax returns, even if only one of them was unable to pay their portion.
If you have credit card debt and your spouse is an authorized user on that card, the spouse will also be considered liable for that debt. If your spouse guaranteed loans for you, even if they were not the principle on that loan, they will be responsible for that debt. In short, many of the debts a married couple could get into will naturally be considered joint.
Because of the way the finances are entwined for a married couple, most individuals will want to declare bankruptcy together. Through this, they can immediately begin rebuilding their financial footing. However, if one spouse has significantly more debt than the other spouse, the spouse with more debt might want to declare bankruptcy on their own.
The Law Office of Cowan & Brady can help you make the right decision for your unique situation. Contact us for help with your bankruptcy situation.