Filing For Chapter 13 Bankruptcy As a Spouse
Managing your money might be challenging at times. It becomes more complicated when you are married and dealing with bills together. Some debts are shared between spouses; others are not. What happens when you fall back on your payments?
One possibility is Chapter 13 bankruptcy. This approach can help you get back on track by creating a three to five-year plan. During this time, you work to repay some or all of the money owed. Chapter 13 differs from Chapter 7 because it allows you to keep your property, such as your home. This happens even if you fall behind on payments.
Only one partner in a marriage is required to file for Chapter 13 bankruptcy. Although it is possible, you do not need to file together. Whether you should file alone or with others depends on your specific circumstances, and it is a good idea to see a bankruptcy lawyer. They can help you decide what is best for your situation.
If only one spouse files for Chapter 13, their filing mentions only their name and social security number and not their partner’s. However, the income of the spouse who does not file must be recorded. This income is used to determine whether the bankruptcy plan will last three or five years. It is also used to determine how much excess money is available, which determines how much the person submitting must repay to creditors. If the couple is separated and no longer living together, the income of non-filing spouse’s is not required to be reported. [1]
When Should You File Chapter 13 Bankruptcy Alone?
Separate Debt
You should file alone if you have separate debt under Chapter 13 if you recently got married, or if the majority of your debt was incurred before your wedding. Also, if you and your partner have a prenuptial agreement, it may mean your spouse is not liable for your debts. Also, some states have “community property” legislation. In some places, debt incurred by one partner during the marriage might be shared by both, even if one did not sign for it.
When Your Spouse Does Not Qualify For Chapter 13
If your spouse is not eligible to file for bankruptcy then you will have to file alone. This ineligibility can be because of several reasons: [2]
- Chapter 13 has certain regulations regarding how much debt you can have, and if your spouse exceeds that amount, they cannot file.
- Your spouse has non-dischargeable debts, like child support or alimony. These debts must be paid even in bankruptcy, thus having a large amount of non-dischargeable debt can make it more difficult to obtain relief through Chapter 13.
- Your spouse has already filed for bankruptcy within the last few years. The bankruptcy law puts a cap on how soon a person can file for bankruptcy again.
Spouse Is A Will Beneficiary
It may be wise for you to file for Chapter 13 on your own if your spouse is included in a relative’s will as the beneficiary of money or property, and that relative may die within the next five years. In this manner, your spouse’s inheritance in the future is safeguarded and stays out of your bankruptcy.
Non-Exempt Assets
In order to protect your spouse’s non-exempt assets, you may want to file for Chapter 13. These are the things, such real estate or private investments, that are exclusively theirs. You can protect what is rightfully theirs by keeping their assets apart and preventing them from being included in the bankruptcy process.
Preserving Spouse’s Credit Score
You may want to file independently in order to save your spouse’s good credit score. Bankruptcy has a negative impact on the credit score and if one partner has a good score it makes no sense to ruin it. Maintaining their good credit allows you, as a couple, to make large purchases, such as a house or car, with better loan terms. This manner, your spouse’s credit remains a financial weapon you can employ while dealing with your own bankruptcy.
Impact of Chapter 13 on Personal Debt & Joint Debt
When only one spouse files for Chapter 13 bankruptcy, the impact on individual and joint debts is treated differently.
Personal Debt
For personal debts, the spouse who files for Chapter 13 is completely liable for paying them. These are their personal debts, thus the bankruptcy process solely applies to those accounts. Individual debts of the non-filing spouse are unaffected by the bankruptcy, therefore they must continue to manage their own financial obligations.
Joint Debt
The repayment plan must contain the shared debts. If shared debts are included in the repayment plan, it can shield the non-filing spouse from creditors demanding payments. [3]
Impact of Chapter 13 on Tax Refunds
Tax returns are typically remitted to the Trustee in Chapter 13 bankruptcy because any excess income is utilized to pay down debts. However, if just one spouse applies for Chapter 13, joint tax refunds are handled differently. As long as you are not in a community property state, the portion of the return owed to the non-filing spouse does not have to be transferred to the Trustee. In states with community property rules, the full combined tax refund is part of the bankruptcy and must be paid up to the Trustee.
Consult an experienced bankruptcy lawyer at Richard West today to learn what option suits your situation.
FAQs
If only one spouse files, their individual debts are impacted, but their spouse’s income may be considered in the repayment plan.
Yes, one spouse can file alone, but it’s important to consider the circumstances and consult with a lawyer.
If most of your debt existed before marriage, or if you have a prenuptial agreement, filing separately might be better.
You may need to file alone if your spouse exceeds debt limits, owes non-dischargeable debts, or recently filed for bankruptcy.
Filing alone can keep your spouse’s nonexempt assets, like property or investments, out of the bankruptcy process.
Yes, filing independently can prevent damage to your spouse’s good credit, allowing future large purchases to be made with better terms.
The filing spouse is responsible for their own debts, but joint debts can be included in the repayment plan to protect both spouses.
In non-community property states, the non-filing spouse’s portion of a joint tax refund does not have to go to the bankruptcy trustee.
Sources:
[1] Chapter 13 – Bankruptcy Basics. (n.d.). United States Courts. https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics
[2] Who can file for Chapter 13 bankruptcy? – findlaw. (n.d.). https://www.findlaw.com/bankruptcy/chapter-13/who-can-file-for-chapter-13-bankruptcy.html
[3] Morel, A. J. K. (2023, July 26). Can I file Chapter 13 without my spouse? Upsolve. https://upsolve.org/learn/chapter-13-without-spouse/
