How is Property and Debt Handled in Bankruptcy When Filing without Your Spouse?

While a spouse has the option to file bankruptcy on their own as an individual, the choice could affect the outcome when it comes to property and debt.  It often depends on the state you reside in; either a common law or community property state.

Most property acquired during marriage is considered community property.  Equitable distribution is sought by common law states, which may not necessarily mean equal division.  Since each state has regulations regarding how property is labeled, you’ll want to review their differences carefully when determining property that is considered part of your bankruptcy estate.  Common law states may say that each spouse owns half of the property if you own it jointly.  If property has the name of one spouse, in a common law state it is likely to be recognized as being owned solely by the spouse listed.

Property included in a bankruptcy case for someone filing in a common law state may include property that is owned by them only, along with property owned jointly with their spouse.  In some cases, if the property qualifies it could be used by the trustee to pay off creditors.  For debtors who file in a community property state, it’s likely that property listed on the petition will be part of your case; even if bankruptcy is filed by one spouse.

There are exemptions available that may protect assets but you’ll want to review what exemptions are allowed. Any property that is separately owned by your spouse is often not including in the filing.  Eligible debt is discharged but creditors could look for payment from the other spouse if they are also listed on the account.

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