Bankruptcy Laws

Does my Spouse need to file for Bankruptcy?

This is a common question for couples needing to file bankruptcy. If married couples have severe debt problems, whether both spouses should file for a bankruptcy protection or not depends on the nature of the debts. A debt may be a separate debt if that debt is in one spouse's name only. However, if the debt is in both spouses' names then the debt may be considered a joint debt especially if both spouses signed the contract for the debt. Joint debts are common in loan agreements such as mortgages or credit cards debts.

Do both spouses need to file for bankruptcy?


Spouse file for bankruptcy

In most states, when one spouse files for bankruptcy, only the separate debts belonging to the bankrupt spouse are wiped out. The separate properties belonging to the spouse who did not file for bankruptcy will not be affected.

If one spouse files for bankruptcy and the debt is a joint debt, the creditor is likely to look for payment from the spouse who did not file for bankruptcy. So, if you want the joint debts to go away, both spouses need to file for personal bankruptcy.

There is one exception. The spouse does not have to file for bankruptcy if the spouse who filed for bankruptcy filed under Chapter 13 and promises to pay back 100% of the debt. For example, if the husband files for a Chapter 13 bankruptcy protection and set up a payment plan to pay off 100% of the debt, his wife does not need to file for bankruptcy protection with him.

Bankruptcy in the community property states

If both spouses live in a community property state such as California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Puerto Rico (also Alaska and Wisconsin), the separate properties of the spouse who did not file for bankruptcy before the marriage is not affected. In community property jurisdictions, any properties or income acquired after the marriage are considered joint properties and will be used to pay off the debt.

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