Bankruptcy is a legal procedure that provides honest but unfortunate debtors a means of obtaining a fresh financial start, unencumbered by crushing debt they are unlikely to ever be able to repay. All bankruptcy cases are heard in federal bankruptcy court. The Bankruptcy Code allows married couples to file a joint petition for bankruptcy, but there is no requirement for both individuals to file. One spouse can file for bankruptcy protection while the other does not. How this affects your joint accounts might depend on the state in which you reside.
If your husband files for bankruptcy protection, the court will require both of you to provide certain financial information to the court, including a list of your creditors and how much you owe them, the source and amount of your income, a list of your property, and a list of your monthly expenses for food, housing, transportation, health care and other essential living costs. Both spouses must provide this information even if only one is filing for bankruptcy. The court, the trustee and your husband's creditors will use this information to evaluate your household financial position.
Chapter 7 bankruptcy is the most common form of individual bankruptcy. It is sometimes referred to as straight bankruptcy or liquidation bankruptcy, because your assets are turned over to a court-appointed trustee who will liquidate these assets to satisfy your debts. Once the bankruptcy court discharges your husband's debts, he is no longer obligated to pay them. This does not relieve you of any obligations that you are responsible for. If you have a joint account, you might become liable for the entire debt.
Chapter 13 bankruptcy is sometimes referred to as the Wage Earner's Plan, because it allows debtors who have a regular income to maintain possession of their assets while participating in a court-overseen repayment plan. Consumer debts that are scheduled for 100 percent repayment through the court-ordered plan -- including any joint accounts that you hold with your husband -- are usually protected from collection activities for both you and your husband. Payments on these accounts must be paid as agreed to in the court-ordered plan.
Bankruptcy can give your husband a fresh financial start, but there are consequences. A bankruptcy is a public record. It will be listed on your husband's credit report where it will remain for up to 10 years. If you have joint debts, it is possible that some mention of the bankruptcy will show up on your credit report, too, according to the Moran Law website. Some community property states treat the property of both spouses as one for purposes of satisfying debts. If you live in a community property state, your assets might be at risk if your husband files for bankruptcy.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.