Should You File Bankruptcy Jointly? 3 Things to Know
Posted on: 22 March 2021
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For married persons, the decision to file bankruptcy can be more complex. Your finances are often intertwined with your partner's. You also have additional choices, such as whether to file as individuals or as a couple. How can you decide how to approach bankruptcy planning as a couple? Here are a few things you need to know to help find the right path.
1. Both Spouses May or May Not Need to File
The first thing a couple should determine is if both spouses actually need to claim bankruptcy. One big factor is how much of your debt is held jointly. Debts discharged for one debtor are not discharged for other debtors, so joint account holders may also need bankruptcy protection. In this case, a joint case may be preferable.
Shared assets may also be affected. Individual bankruptcy considers each joint owner's share of equity as their own asset. However, if that equity could be used to fulfill debts, the entire asset may need to be liquidated regardless of whether the joint owner is involved in the bankruptcy. In this case, as well, joint bankruptcy may provide additional protection.
On the other hand, if two partners have very different financial situations, both may not need to declare bankruptcy. If the mortgage is solely in your name but your partner struggles with high medical debt, for instance, avoiding bankruptcy on your end protects the family home from liquidation.
2. Joint Bankruptcy Can Be Cheaper and Easier
Joint bankruptcy is treated as one single case, resulting in two big benefits. The first is that you only pay one fee for one case. If you file as two individuals, you will likely pay twice for everything. Second, your household must manage only one bankruptcy case instead of two. This may make it simpler to keep track of and easier to fulfill the rules.
3. Exemptions and Means Testing Are Affected
Exemptions are assets you may exclude from seizure to satisfy debts in Chapter 7 bankruptcy. A couple who files bankruptcy together can often exempt double the individual amount of such exemptions. So if the individual state exemption for a vehicle is $3,000, a joint bankruptcy case may exempt up to $6,000. However, this is not always the case as each state has its own rules.
Similarly, the means test for Chapter 13 repayment plans may be different for one spouse versus a couple filing jointly. Individuals claiming bankruptcy may be able to remove some of their spouse's income and expenses from their calculations — possibly making it easier to qualify. However, this also varies by state.
Where to Start
Clearly, decisions about filing bankruptcy individually or jointly have many factors. The best way to start is by meeting with a bankruptcy attorney in your state. Together, you, your partner, and your attorney can examine all the angles and find the best solution for your family. Make an appointment today to learn more.