When financial hardships occur, many married couples might consider bankruptcy as a solution. However, choosing to file jointly or individually can significantly impact both partners’ financial futures. In this article, we will examine joint and individual bankruptcy filings, helping you understand the benefits and drawbacks of each option.
Understanding Bankruptcy Basics
Before discussing the differences between joint and individual bankruptcy, it’s important to understand the basic concepts of bankruptcy itself. Bankruptcy is a legal process that enables individuals or businesses to discharge or repay their debts under the protection of the federal bankruptcy court. The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13.
- Chapter 7 Bankruptcy: Often called “liquidation bankruptcy,” this option lets individuals discharge most unsecured debts, like credit card bills and medical expenses. However, it may require selling non-exempt assets to pay creditors.
- Chapter 13 Bankruptcy: This type of bankruptcy is meant for individuals with a steady income who want to develop a repayment plan to pay off their debts within three to five years. It enables individuals to retain their assets while making manageable payments to creditors.
Understanding these options is crucial as they form the basis for the decisions couples must make regarding joint or individual filings.
Joint Bankruptcy Filing
Filing for bankruptcy jointly means that both spouses submit one bankruptcy petition. This method can simplify the process and give both partners a fresh start.
Advantages of Joint Filing
Simplified Process: Filing jointly allows couples to combine their debts into one case, reducing paperwork. This streamlined method can save time and effort during a stressful period.
Comprehensive Debt Relief: Joint filings cover all shared debts, enabling both spouses to be released from their financial responsibilities. This can be especially beneficial for couples with substantial joint debt.
Cost-Effective: Filing jointly usually involves only one set of legal fees, making it a more cost-effective option than filing separately.
Disadvantages of Joint Filing
Impact on Credit Scores: A joint bankruptcy filing will impact both spouses’ credit scores. This can make it difficult to obtain future credit, as both partners will have a bankruptcy on their records.
Asset Exposure: Joint filings expose all assets, including those owned individually, to scrutiny. This means that any non-exempt assets could be at risk during the bankruptcy process.
Shared Responsibility:If one spouse has significantly more debt, the other might feel unfairly affected by filing jointly. This can cause tension in the relationship during an already stressful period.
Individual Bankruptcy Filing
In contrast, individual bankruptcy allows one spouse to file for bankruptcy independently. This option can be beneficial in certain circumstances.
Advantages of Individual Filing
Protection of Non-Filing Spouse’s Credit: By filing individually, the non-filing spouse’s credit score remains intact, which can be crucial for future financial plans.
Asset Preservation: Individual filings may protect assets owned solely by the non-filing spouse from being included in the bankruptcy estate, safeguarding their financial interests.
Targeted Debt Relief: If most of the debt is in one spouse’s name, individual filing can efficiently address the financial issues without affecting the other spouse.
Disadvantages of Individual Filing
Limited Debt Relief: Only the debts of the filing spouse are discharged. Any joint debts will still be the responsibility of the non-filing spouse, which can create financial strain.
Increased Financial Burden: The non-filing spouse may become solely responsible for shared debts, such as credit cards or medical bills, leading to potential financial challenges.
Complexity in Chapter 13 Cases: If one spouse files for Chapter 13, the court may still consider the household’s combined income when calculating repayment plans, complicating the process.
Factors to Consider Before Filing
When deciding between joint and individual bankruptcy, several factors should be taken into account:
Debt Distribution: Assess how debts are distributed between you and your spouse. If most debts are shared, a joint filing may be more beneficial.
Asset Ownership: Consider whether you jointly own significant assets, such as property or vehicles. This can influence the decision on which filing option to pursue.
Income Levels: Evaluate your combined and individual incomes. This can impact eligibility for certain bankruptcy types and repayment plans.
State Laws: Different states have varying laws regarding bankruptcy, including exemptions and asset protection. Understanding your state’s regulations is essential.
Getting Help Filing Bankruptcy
Filing bankruptcy can be overwhelming, especially for married couples. Consulting with a qualified bankruptcy attorney can provide valuable insights and guidance tailored to your specific situation.
If you’re considering bankruptcy, don’t hesitate to reach out to Brock and Stout for a free consultation. We’re here to help you explore your options and find the best path forward for you and your spouse. Let our family help your family get a financial fresh start.