If your wife is in financial difficulty, sometimes it makes sense to have her file bankruptcy by herself. However, in some cases your wife filing bankruptcy could have serious financial ramifications for you individually. Factors that determine the effect of your wife's bankruptcy on you include your state of residence, how your debt is titled and the bankruptcy chapter your wife files.
If you hold any joint accounts with your wife, her bankruptcy will not protect you and could cause problems. While a bankruptcy discharge will eliminate your wife's legal responsibility to pay off that debt, you will remain liable for repayment. Even if your wife brought the debt to the marriage and you simply signed on to the account as a joint holder, you are now the only one on the line for that debt. Creditors will come after you for non-payment as if the debt was entirely your own. In some cases, a creditor may cancel a joint account if your wife files bankruptcy on it.
Community Property Debts
Most states follow common law, which stipulates that spouses can have separate debt. If you live in a common-law state and don't have any joint debt, your wife's bankruptcy filing won't create any debt liability issues for you. However, community-property states consider any debt incurred by either spouse after marriage to be joint debt, regardless of how it is titled. If your wife has a credit card in her own name, you are liable for the full repayment of that debt, even if your wife gets a bankruptcy discharge and you never made any charges on the card yourself.
If your wife files Chapter 7 bankruptcy, her non-exempt assets become subject to liquidation. A non-exempt asset is any property with values above the amount specified by bankruptcy law. In community-property states, all of the property you and your spouse own is considered part of the bankruptcy estate, even if you didn't file. As a result, you may end up losing some valuable assets if your wife files bankruptcy. In the common-law states, typically only your wife's separate property is susceptible to liquidation. However, if you own joint assets, the trustee may liquidate them to get at your wife's non-exempt portion.
You won't have to worry about losing any property to creditors if your wife files Chapter 13 bankruptcy. However, you will most likely lose some of your income. A Chapter 13 bankruptcy requires repayment to creditors through a payment plan that can last up to five years. In community-property states, your joint income with your spouse is used to determine the size of that monthly payment. While your income is technically not included in common-law states, the fact that you wife has a new monthly payment obligation will certainly affect you at least indirectly.
- Nolo: Filing Bankruptcy Without Your Spouse, What Happens to Debts & Property
- Bills.com: Bankruptcy Questions and Answers
- Bankruptcy Law Network: Do I Have to File Bankruptcy With My Spouse
- Nolo: Debt and Marriage, When Do I Owe My Spouse's Debts?
- Bankruptcy in Brief: Exemptions, What Can I Keep If I File Bankruptcy?
- Nolo: An Overview of Chapter 13 Bankruptcy
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