If you are married, you can file an individual bankruptcy without your spouse. But even if you file alone, your bankruptcy can have consequences for your spouse. In general, whether your bankruptcy will affect your spouse depends on:
To learn more about what to consider before filing for bankruptcy, see our topic area on Should I File for Bankruptcy?
If you file for bankruptcy without your spouse, it will typically not affect your spouse’s credit. But if you have joint debts, the fact that you filed for bankruptcy to discharge the debt may appear on your spouse’s credit report. In addition, your creditors will receive notice of your bankruptcy and can usually still come after your spouse to collect any joint debts.
In general, your bankruptcy will not affect any separate property that your spouse owns individually. But if you have jointly owned assets, how they will be treated in bankruptcy depends on whether you live in a common law or community property state.
If you live in a common law property state, your individual assets and your interest in any property you own jointly with your spouse (typically half unless otherwise noted) are considered part of your bankruptcy estate. The property your spouse owns in his or her name alone is normally not at risk.
But keep in mind that in Chapter 7 bankruptcy, the appointed bankruptcy trustee may be able to sell the entire jointly owned asset if you can’t exempt the value of your interest and the property can’t be divided. If the trustee sells the property, he or she will pay your spouse the value of her interest and use your portion of the nonexempt proceeds to pay back your creditors.
In community property states, almost all assets acquired (and income earned) by either spouse during the marriage are considered community property. Because both spouses own community property jointly and equally, all of it is considered property of your bankruptcy estate and may be used to satisfy your debts. This means that if most of your joint assets are community property, your bankruptcy can have a significant impact on your spouse.
For more detailed information on what happens to joint property in bankruptcy, see How Is Joint Property Treated in Bankruptcy?
When you file for bankruptcy, it eliminates only your personal liability for debts that are discharged in your case. Your individual bankruptcy doesn’t wipe out your spouse’s obligation to pay back his or her own debts or any joint debts you have together. This means that creditors can still pursue your spouse to collect your joint debts.
But there is an exception. If you live in a community property state and discharge the debts you owe jointly with your spouse, those creditors can only go after your spouse’s separate property (not your marital community property) after your bankruptcy. Because almost all property your spouse acquires during the marriage is community property (including his or her income), your spouse essentially receives the benefit of your discharge as well for your joint debts. This is commonly referred to as a phantom discharge.
For more information on how joint debts are treated in Chapter 7 bankruptcy, see What Happens to My Cosigner in Chapter 7 Bankruptcy?
If you have joint obligations with your spouse, filing for Chapter 13 bankruptcy can protect your spouse from those creditors with the codebtor stay. The Chapter 13 codebtor stay prohibits creditors from coming after your codebtors (such as your spouse) during your bankruptcy. But keep in mind that creditors can ask the court to lift the codebtor stay if you don’t pay off the joint debt in your repayment plan.
To learn more, see What Happens to My Cosigner in Chapter 13 Bankruptcy?