Bankruptcy for Married Couples: Should We File Jointly or Separately?

If you’re married and considering bankruptcy, you’re likely confused by your options. Is filing for bankruptcy as an individual or as a married couple your best option? Unfortunately, there is no clear cut-and-dry answer to this question. It depends largely on the details of your assets, income levels, and debt.

Consulting with a bankruptcy attorney early on in the process can help you make the best decision for your family. Call the team at Padgett & Robertson at 251-342-0264 to schedule a consultation with one of our Mobile bankruptcy lawyers.

How Much Debt Each Partner Has and How Much Debt is Shared

You can start by breaking down the debt you and your partner have. You may want to separate it by individual and then look at the debt you share as a married couple. This is a huge part of the decision-making process. If most or all of your debt is shared, it may make more sense to file jointly.

One individual ridding themselves of the debt doesn’t make sense, as the other partner will still be obligated to pay it. If both partners have a substantial amount of individual debt, filing jointly may allow them to get a fresh start. However, if one partner carries the lion’s share of the debt, it may not make sense to saddle the other spouse with a bankruptcy on their credit report. The partner who is in debt may be able to hit the restart button without taking their spouse’s credit with them.

Remember That Marital Debt Doesn’t Disappear After Bankruptcy

If you and your spouse share lots of debt, filing jointly could be the better option for you. Why? When one person files bankruptcy, their obligation to repay the debt disappears. If anyone else owes that debt, their obligation does not.

Imagine a situation where you file for and are granted a discharge of your debt, most of which is consumer debt that you and your spouse accumulated together. The creditors can no longer go after you, but they will still go after your spouse.

In this situation, you have not really changed your family’s financial situation or eradicated the debt. You’ve simply shifted the responsibility for the debt. Carrying all that debt on their own could prove to be too much for your spouse, who would then need to file bankruptcy alone. All of this could be avoided if you file jointly.

Protecting Your Assets

You’ll also want to consider your separate and marital assets while making this decision. Alabama law only allows you a certain amount of exempt assets. These assets are those that cannot be liquidated and sold to pay back your creditors.

If one partner has a significant amount of separate assets and the other partner has none, including the first party’s assets in bankruptcy calculations could actually disqualify the in-debt party from filing. Filing separately could allow the partner with assets to keep them.

The same is true for partners with serious disparities in their income levels. Keep in mind, though, that the bankruptcy court won’t just allow you to file bankruptcy on your income alone. They will want a comprehensive look at your partner’s income, assets, and contributions to your bills. They do this to verify that you truly cannot pay back your debt. While this process can be fairly time-consuming, it may give you a fresh start without compromising your partner’s finances.

Plan for the Future

The goal of bankruptcy is to start over, so it makes sense to think about what you want your future to look like. If you file bankruptcy jointly, it will be on both parties’ credit. This could keep you from getting an apartment, house, car, or anything else that requires a credit check. This may be unavoidable if you both have sizable debt, but it is something to consider if filing separately is an option for you.

Explore Bankruptcy as an Option with Padgett & Robertson

Ultimately, you can only make the best decision for you and your spouse by looking at all of the factors at play. We can help you understand each option and the potential outcomes. Set up a time to talk with our team of bankruptcy attorneys now by reaching out online or calling us at 251-342-0264.