We’re so used to thinking about married folk as a couple, rather than as two individuals: George and Gracie; Bill and Hillary; John and Abigail.
The Bankruptcy Code feeds that perception when it allows a married couple to file a joint case. Two people, one set of papers, one filing fee.
But while filing together is permitted, it is not required.
Likewise, your mate can file bankruptcy whether you approve or not.
Complications in single spouse bankruptcy
Things can get dicey when the non filing partner is absolutely non cooperative.
Since 2005, the bankruptcy means test requires analysis of the last six months of paystubs for both parties, if they live together. There’s no uniform approach by judges if the non filer won’t provide information.
Then there’s the issue of jointly owned property. File bankruptcy and all the assets of the person filing are brought into the bankruptcy estate. The estate could include an operating business if the business is run by the non filer as a proprietorship, rather than a corporation or LLC.
Bankruptcy law allows a trustee to sell assets where the debtor (the person who filed bankruptcy) owns only a partial interest in the asset.
Then, in community property states like California, a bankruptcy filing by one spouse brings all of the community property into play. (In exchange, all future community property of the couple is protected from the debts the filer discharges.)
Advantages of one spouse filing
I frequently recommend that only one spouse file bankruptcy. The reasons and advantages are many in a community property state like California.
All of the couple’s community property is protected from creditors, regardless of which spouse files the case. One advantage to filing alone is to preserve the other’s right to file bankruptcy later, should there be debts that aren’t dischargeable in the first case.
I think of the right to file bankruptcy as a valuable commodity which shouldn’t be squandered when there might be a need for debt relief for the couple sooner than the Bankruptcy Code permits another filing.
I use single spouse filings to get couples below the Chapter 13 debt limits, or to protect an underwater home while the couple seeks a loan modification.
So whether your spouse is game to file or not, you can, and perhaps should, file bankruptcy alone.
Image courtesy of rez atkinson.