Pros and Cons of Joint and Individual Bankruptcy Filing
When filing bankruptcy, couples must decide whether to file an individual bankruptcy or a joint bankruptcy with a spouse. Give these options considerable thought and discuss them with your bankruptcy lawyer. Both types of filings have their advantages and disadvantages and state marital property laws also must be considered.
The bankruptcy chapter most appropriate for your situation may hinge on whether the filing is individual or joint.
Advantages for one spouse filing singly
- When one spouse owes considerable debt but the other does not, if only the spouse with the debt files bankruptcy, then only one spouse has to experience the adverse effect of bankruptcy appearing on credit reports.
- While joint property is subject to liquidation, the non-filing spouse’s separate property is not subject to liquidation.
Disadvantages for filing singly
When filing singly, the other spouse generally still must provide information about income and joint assets. The bankruptcy court determines Chapter 7 eligibility based on “household” income. Eligibility for chapter 7 requires an analysis of the means test when income is greater than the median qualifying income. When you do not pass the means test, a presumption of abuse arises and depending on other circumstances often forces debtors into a Chapter 13 repayment plan. The Chapter 13 plan similarly bases the amount of monthly repayment on the “household” income.
11 USC § 101 - Definitions 10A (http://www.law.cornell.edu/uscode/text/11/101) explains what bankruptcy courts consider as current monthly income for couples filing jointly.
The non-filing spouse would not gain the protection of the automatic stay and discharge. Thus, some creditors in some circumstances would still be entitled to collect their debts against the non-filing spouse.
Advantages for filing jointly
Some states allow debtors to choose whether to use state exemptions or federal exemptions when filing bankruptcy. Exemptions allow debtors to protect certain property from creditors. In states where you can file exemptions using federal bankruptcy exemptions, joint filing allows you to double the amount of your exemptions claimed. Certain states also allow couples to double exemptions in joint filing under state exemption categories.
When both spouses plan on filing for bankruptcy, filing jointly allows them to reduce bankruptcy costs by filing one petition. Also, both spouses gain the benefit of the automatic stay and discharge and neither would be subject to collection proceedings.
Weighing the pros and cons of how to file bankruptcy merits discussion with an experienced bankruptcy attorney who can help you make the right decisions.