Figuring out if a spouse will be affected by the other spouse's bankruptcy depends on a number of factors. Property ownership, the non-filing spouse's income and joint liability of debts need to be taken into consideration. Since the financial situation for each married couple may vary greatly, a bankruptcy attorney can advise how the bankruptcy filing will directly affect the non-filing spouse based on the particular circumstances of each case.
Income and Expenses
When someone files for bankruptcy, the court wants to know the income and expenses of the entire household. Even if the other spouse isn't filing for bankruptcy, the court will request information regarding how much money both spouses contribute to the household. When married couples incur expenses, both of them may contribute to the payment of those overall expenses in some manner. As a result, the bankruptcy court also wants a list of expenses for the entire household. The non-filing spouse may need to assist with the case by providing copies of pay stubs and bills to the bankruptcy attorney so that an accurate representation of the household's finances can be presented to the bankruptcy court.
If both spouses legally share ownership of property, the non-filing spouse may be affected by the bankruptcy. Federal and state laws allow the person filing for bankruptcy to keep certain assets and properties. Those properties are considered exempt because they cannot be used to pay creditors. Any property not included in the exemption laws can be used to pay the creditors listed in the bankruptcy. If the bankruptcy court decides to take the non-exempt property and sell it, the non-filing spouse will be monetarily reimbursed based on the percentage of his ownership interest in the property.
Liability for Joint Debts
Both spouses should carefully review their list of debts. When spouses cosign loans and credit cards, they both agree to be personally liable for the payment of those debts. If the spouse who filed for bankruptcy gets the debts discharged, the creditors cannot legally pursue payment from that spouse. The non-filing spouse will remain responsible for paying off those debts. If the joint debts are fully paid during the bankruptcy proceedings, the non-filing spouse doesn't have to make any more payments to those creditors.
Each spouse has a separate credit report and credit score. The bankruptcy may show up on the non-filing spouse's credit report for debts and accounts shared with the spouse who filed for bankruptcy. If the spouses don't share personal liability for any debts and have managed to keep their finances separate, then no information regarding the bankruptcy should show up on the non-filing spouse's credit report. If the non-filing spouse tries to get new loans or credit cards in the future, the credit terms may only be negatively affected if the spouse who filed for bankruptcy is included as a co-signor.
- American Bankruptcy Institute: §521 Debtor's Duties
- Bankruptcy Law Network; The Nonfiling Spouse and the Means Test's Marital Adjustment; L. Jed Berliner, et al
- Bankruptcy Law Network; If I File Bankruptcy, Does My Spouse Have to File?; Kurt O'Keefe
- American Bankruptcy Institute: §363 Use, Sale, or Lease of Property