Can I File Chapter 13 Without My Spouse

Can I File Chapter 13 Without My Spouse?

Spouses can file for bankruptcy alone or they can file jointly. There are pros and cons to each and which one is right for you will depend entirely on your situation. If you are filing alone it’s important to consider what impact this will have on your spouse. It’s equally important to consider the advantages of filing together even if most of the debt is only in one spouse’s name.

Here, we’ll take a look at all aspects of the problem to help you get a feel for how you want to handle your outstanding debt. To learn more, contact a Dallas TX bankruptcy attorney at Allmand Law Firm, PLLC today.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy allows the debtor to repay part or all of their debts over the course of 3 to 5 years with any remaining unsecured (and dischargeable) debt being discharged from bankruptcy at the end of the repayment term. For debtors who are married, filing Chapter 13 bankruptcy may become complicated if they choose to file bankruptcy alone.  Let’s take a look at some of the problems a debtor my face.

A Common Scenario for Those in Debt

Debt doesn’t just happen because of poor planning or bad choices. Sometimes it happens through no fault of your and by means that are outside of your control. Take, for instance, a car accident. If one spouse is rendered unable to work because of a car accident, not only will their expenses pile up but they may have considerable debt from medical bills. However, the debt will be primarily in one spouse’s name. What can happen?

Let’s say they allow the debt to default and the holder of the debt initiates a lawsuit against them. If they win the judgment, the creditor can now place liens on real estate, garnish wages, or levy bank accounts. In cases where both spouses own assets or have bank accounts together, those assets can be vulnerable to creditor actions. Creditors may be able to levy a jointly held bank account or place a lien on jointly held real estate (even your own home). However, the creditor is only entitled to the debtor spouse’s share of that asset. Nonetheless, it can create significant problems for both spouses if the title of your home is clouded with multiple claims.

Community Property States and Debt

Couples who acquired the debt together jointly during the marriage are responsible for the debt together. If a spouse brings debt into the marriage, this debt is (usually) considered property of that spouse alone. We use the term usually here because if both spouses benefited from a line of credit, the court may still consider it marital property. But the question of benefit applies to cases where the spouse either brought the debt into the marriage or acquired it during the marriage.

Nonetheless, a spouse cannot be considered responsible for debt that they did not sign a contract to acquire and received no benefit from. For instance, let’s say husband takes out a credit card for online gambling and he loses big. In this case, husband would be responsible for all the debt.

Lines of Credit in Both Spouses’ Names

A Chapter 13 bankruptcy filing may become more complicated and hazardous for the non-filing spouse if the unsecured debt has both the filing and non-filing spouses’ names on the agreements.  If the filing spouse does not fully repay the jointly held unsecured debt in their Chapter 13 bankruptcy, the creditor may have the right to pursue the non-filing spouse for payment after the balance of the debt has been discharged.   This could also be the case for any secured property that is surrendered during the bankruptcy.  For example, if the couple jointly held a mortgage on a property that had a deficiency balance after it was auctioned off AND that balance was discharged at the end of the Chapter 13 bankruptcy repayment term, the mortgage company may pursue the non-filing spouse for payment after the bankruptcy case is closed.

On the other hand, if the bankruptcy debtor repays all of his debt in that 3 to 5 year period, the non-filing spouse won’t have a problem; but that is not likely because that rarely happens. Before filing for bankruptcy, married debtors need to candidly discuss the ramifications of bankruptcy with both their non-filing spouse and their bankruptcy attorney.  In some cases it may actually be beneficial for a married debtor to file a joint bankruptcy so that they can protect their spouse and by extension the assets of their household.

Husband Files for Bankruptcy and Wife Doesn’t

There is no such thing as “community debt”. If husband files for bankruptcy under Chapter 13 or otherwise, his debts will be discharged at the end of the bankruptcy. Wife’s debts will still exist and she will be required to pay them and be subject to aggressive creditor action.

Community property and assets owned by both spouses are protected, however, when husband files for bankruptcy. That means husband’s creditors cannot touch assets that wife owns. However, creditors can still initiate actions against wife if she has not filed for bankruptcy and they can initiate actions against his share of community property.

In addition to there not being any “community debt”, there is no such thing as a “community discharge”. If the spouses want to discharge their collective debts together, they will have to file their Chapter 13 jointly.

The bankruptcy will not appear on wife’s credit report, only husband’s.

Husband and Wife File Chapter 13 Bankruptcy Jointly

One of the major benefits of filing jointly is that it’s much cheaper for spouses who are both heavily in debt to file one joint bankruptcy than it is to file two separate ones. Chapter 13 bankruptcies are more expensive to file than Chapter 7, so costs related to the bankruptcy will be a matter for consideration. If both spouses hold a lot of joint debt or have several debts in their own name, filing under Chapter 13 can be a great way to protect the assets they do have.

What About Chapter 7 Bankruptcy?

This is the bad news. Since community property is considered a part of the bankruptcy estate, a debtor spouse filing under Chapter 7 exposes all property of the marriage to liquidation. In this case, we tend to steer our clients toward Chapter 13.

We Understand That It’s Complicated

A Dallas TX bankruptcy attorney can help you protect your assets from a spouse’s bankruptcy and ensure that your greatest assets are not exposed to adverse creditor actions.

Call for a Free Bankruptcy Consultation

Allmand Law Firm, PLLC helps those in debt protect themselves from aggressive creditor lawsuits. Call us today to set up an appointment and we can begin advising you on your best course of action.