Married and Filing for Bankruptcy: Joint or Separate?

Married couples aren't required to file for bankruptcy together. You can file a joint case with your spouse or file on your own, and the right call depends on whose debts and property are at stake and what your state's exemption laws allow.

Joint vs. Separate Filing: At a Glance

Here's a quick look at how the two options typically play out.

When Filing Jointly Makes Sense

Filing jointly makes sense when most of your debts and property are shared, since it lets you handle everything in one case, pay one filing fee, and pay only one lawyer (if you hire one). All property of both spouses becomes part of the bankruptcy estate, and all debts of both spouses get wiped into the filing, so if you're both struggling with debt, a joint case usually gets you both relief faster and cheaper than two separate cases. (11 U.S.C. § 302.)

Consider filing jointly in several situations.

When You Live in a Community Property State

In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), most of your debts were incurred during marriage, and most of your property was acquired during marriage. In these states, everything earned during the marriage and everything bought with those earnings counts as community property, and debts incurred during the marriage count as community debts. (Alaska is an opt-in community property state: spouses are treated this way only if they've signed a community property agreement or created a community property trust; otherwise, standard common-law rules apply.)

All community property and debts become part of the case in either situation, but filing jointly lets both of you discharge your separate debts and weigh in on decisions affecting your shared property.

Your State's Exemption Laws Are Favorable

When exemption laws let spouses double their exemptions, and doubling exemptions would help you keep property you'd otherwise lose, filing jointly is worth a look. (11 U.S.C. § 522.)

To find out your state's rules, see Bankruptcy Exemptions -- What Do I Keep When I File For Bankruptcy? and select your state from the bottom of the page.

You Both Owe the Same Debts

When most of your debts are joint debts, like a shared mortgage or credit cards you both signed for, a joint filing wipes out both spouses' liability for those debts in one case. File alone instead, and creditors can still come after your spouse for any joint debt the case doesn't cover.

Community property states offer one exception. Once your case ends, the "community discharge" protects community property you and your spouse acquire afterward from creditors seeking to collect the debt your bankruptcy wiped out, as long as you're still married. That protection doesn't extend to your spouse's separate property, and it ends if you divorce. (11 U.S.C. § 524(a)(3).)

When Filing Separately Is the Better Option

Filing separately is the better option in several cases, such as:

• Most of the debt is the filing spouse's individual debt, and the couple wants to preserve the credit rating of the nonfiling spouse.
• The nonfiling spouse has significant separate property, income, or credit to protect.
• Only one spouse is eligible to file.

In a separate filing, your separate property and your share of the marital property become part of the bankruptcy estate. In community property states, all community property is part of the estate even if only one spouse files, but the nonfiling spouse's separate property stays out of it.

Filing Separately: When Required

If one spouse's prior Chapter 7 or Chapter 11 case was filed within the past eight years and resulted in a discharge, that spouse won't be eligible for a discharge in a new Chapter 7 case. The same is true if the spouse's prior Chapter 13 or Chapter 12 case was filed within the past six years and resulted in a discharge unless the earlier plan paid unsecured creditors in full, or paid at least 70% and was proposed in good faith as the debtor's best effort. The lookback period runs from the filing date of the earlier case, not the date the discharge was entered.

That spouse can still file on their own, but the case would move forward without a discharge for them. If you and your spouse have separated and your spouse won't cooperate, you might also need to file alone even if a joint case would otherwise work better. (11 U.S.C. § 727(a)(8)-(9).)

Filing Separately: When Optional but Preferred

Filing separately might still be the smarter move if:

• You own property together as tenants by the entirety, and your state excludes that property from the bankruptcy estate when only one spouse files. This matters most for your home: filing separately could let you keep it, while filing jointly could put it at risk.
• One spouse holds most or all of the debt, you haven't built up much property together, and you married relatively recently. Here, filing separately allows the debt-free spouse to keep their separate property, protect their credit rating, and remain entirely outside the bankruptcy case.
• You want to shield your spouse's credit. A solo filing won't land on the nonfiling spouse's credit report just because you're married.

Reporting Income When You Live Apart

How you report income depends on whether you file jointly or alone, not just on where you live. If you and your spouse file together, you must report both incomes in full on the means test, even if you live in separate households. Because you're both debtors in the same case, the marital adjustment deduction doesn't apply.

If you file alone and live with your spouse, you must also disclose your spouse's income, but you can use the marital adjustment deduction to exclude any part of your spouse's income that isn't regularly used toward your household expenses.

If you file alone and live apart from your spouse, the outcome depends on why you're living apart. The official means-test form lets you exclude your spouse's income from the calculation entirely if you're legally separated, or if you're living apart for reasons that don't include evading the means test, for example, a job relocation or an informal separation. If neither of those applies, your spouse's income must still be reported, though you can use the marital adjustment deduction to offset the portion your spouse spends solely on their own expenses. (11 U.S.C. § 707(b)(7)(B).)

Talk to a Bankruptcy Lawyer

Whether you file jointly or separately determines how much debt gets erased, how much property you keep, whether your home is at risk, and what happens to each spouse's credit afterward. If you want to keep researching before that meeting, these related articles can help:

• see how the Chapter 7 means test could affect your eligibility, and
• learn more about what happens to your property in bankruptcy.