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Bankruptcy and marriage – Individual filing versus Joint filing

Filing bankruptcy will give you a fresh financially start. And if you file bankruptcy, you will get ample opportunity to repair your credit score. It depends on how quickly you gather your finances. If you are married and if you file bankruptcy either jointly or individually, your finances may be affected differently. The article highlights the manner in which your finances are affected if you file bankruptcy individually or with your spouse.

There are 5 aspects that need to be considered when you file bankruptcy after marriage

1.Debts and joint debts during marriage

Individual or joint filing will depend on how the debts were accrued. If bankruptcy is being filed by one spouse, the other spouse may also have been responsible for the debts that have accumulated. However, marriage doesn’t imply “shared liability of debt”. The non-filing spouse is responsible for the debts in case he or she has co-signed or signed the agreement to pay them off. In case majority of the debts have been accumulated by one spouse, the other spouse can avoid filing bankruptcy jointly.

2.Individual or joint filing

In case one spouse files bankruptcy, the other spouse may be targeted by the creditors. Filing bankruptcy jointly may render protection to both the spouses but under certain circumstances, it may not be necessary. Whether individual or joint filing is better is decided by several factors. These may include income sources, nature of debts owed, type of property ownership, manner in which ownership is defined, your residing state etc.

3.Income of the household

If you are planning to file Chapter 7 bankruptcy, a means test is conducted. Combined income of both the spouses is taken into consideration irrespective of your intention of filing bankruptcy individually. It would decide whether the debts need to be discharged(Chapter 7 bankruptcy) or repaid in due course (Chapter 13 bankruptcy).

4.Individual bankruptcy filing doesn’t protect your spouse

If one spouse is filing bankruptcy, it doesn’t protect the other spouse from lawsuits being filed against him/her. If there are joint debts, they must be paid off to avoid creditor action against the non-filing spouse in future.

5.Property ownership

The state in which you live has laws that determine the type of “marital property ownership”. There are 2 types of property ownership in marriage and they are “Equitable distribution” and “community property”. While “Equitable distribution” includes the property owned by the bankrupt spouse as well as half of the marital property jointly owned, “community property”, is the property acquired at the time of marriage and that which is owned equally by each spouse. In bankruptcy filing usually the community property is at stake. The separate property of the non-filing spouse acquired prior to getting married remains safe.

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