If you've come to the conclusion that nothing but a chapter 7 bankruptcy filing will remedy your financial situation, you don't have to include your spouse. Find out more about the potential repercussions when one spouse files for bankruptcy and the other doesn't.
Credit Record Effects
There is no question that filing for bankruptcy has a negative effect on a filer's ability to get credit afterward. The federal filing notation remains on the record for up to 10 years, though that notation's impact will lessen over time. If only one party in the marriage files, the bankruptcy will only show up on that filer's record. Unfortunately, when the couple applies for joint debts like an auto loan or a mortgage, the negative mark of the filer's record could impact the approval. If your spouse has good credit and makes enough income on their own, the filing may not necessarily affect their ability to make large purchases if they apply for credit separately.
Debt Discharge Effects
Almost all debts held by a bankruptcy filer can be discharged during the bankruptcy process. Debts like credit cards are considered unsecured debts and are usually wiped off the filer's record. Debts that are held jointly are treated differently depending on the state of residence of the couple. In community property states, there is a real possibility that the entire joint debt will be discharged when one spouse declares bankruptcy. In equitable distribution states, bankruptcy debts may either be divided up or the non-filing spouse could be responsible for 100% of the joint debts. If you have a great deal of jointly-held debts, speak with a bankruptcy attorney to find out how debt in your state is treated during bankruptcy.
In some cases, a chapter 7 filing means a loss of property. Exemptions protect a certain amount of property and they vary widely from state to state. Again, the way the law looks at marital assets will dictate what happens to the property during a bankruptcy filing. In equitable distribution states, the non-filing spouse is protected from losing any property that is in their name alone. In community property states, all property, regardless of the owner, is at risk with a bankruptcy filing. Jointly-held assets present a more confusing issue. In some states, property like real estate is protected to a degree when held jointly. In some states, the property may be at risk.
One final aspect of this issue to consider is that the bankruptcy code usually provides a couple with some perks when they file jointly. For example, there is the potential to double your exemptions if you file jointly. If you and your spouse own a lot of property, it's vital that you understand the consequences of filing either separately or together. Speak to a chapter 7 bankruptcy attorney find out more about how to file.