MAY
ONE SPOUSE FILE BANKRUPTCY?
In some cases, a married husband and wife may desire one spouse to file for Chapter 7 bankruptcy and not the other spouse. Normally, if one spouse files a Chapter 7 bankruptcy, the other spouse becomes a “silent beneficiary” who benefits from the other spouse's bankruptcy discharge. Some call the non-filing spouse’s discharge a “phantom discharge.” But just one spouse filing bankruptcy does contain certain risks. This letter contains basic and very general rules. This letter does not discuss certain potential exceptions. Let’s say two unmarried persons owe a joint debt. Then, one of the persons receives a bankruptcy discharge. The other party then remains liable to pay the debt. But
But
if the
husband dies, or if the couple divorces, or if the wife owns non-exempt
(legally unprotected) separate property, then the creditors may be able
to sue and actually collect
against the wife after the bankruptcy discharge. Also, if the
married couple moves to a non-community property state, such might
possibly open the door for a creditor to collect the debt. The
above rules also apply if the wife had her own debts and did not file
bankruptcy. I have wrote above about
“community property” and “separate property”. In If
you earn money or acquire property during
marriage, it is usually community property. But,
if you receive money by gift or will during
marriage, it is separate property. If
you earn money or acquire property before
marriage (or after permanent
separation or divorce), it is separate
property. Back
to the discussion: Thus, a Chapter 7 bankruptcy discharge generally protects the spouse who did not file bankruptcy from having community property seized. But some creditors may not realize this! One or more creditors could
potentially seek to recover the debts owed from the non-filing spouse. The non-filing spouse can
still be sued. Thus,
you might have to hire and pay a lawyer
to defend such an attempt to seize the assets.
You might also hire a lawyer to seek to convince the
creditor that it is
a waste of time to collect on the debt.
Will
the credit rating of the spouse who
does not file bankruptcy be affected by the other spouse’s bankruptcy
filing? It depends. The non-filing spouse’s
credit rating and/or
credit report possibly might, in some
cases, potentially be negatively affected by the filing
spouse’s bankruptcy
filing. While
I usually recommend that both spouses file bankruptcy, in some cases,
it may be
potentially beneficial for just one spouse to file. Preparing
Bankruptcy Petition: Even if just one spouse files
bankruptcy, the
bankruptcy documents will look like both spouses are filing bankruptcy. Both
spouse’s names, assets, debts, income, and expenses are contained in
the
bankruptcy papers. But
only one spouse
is named as debtor. Only
one spouse
technically gets the discharge. For a free and confidential consultation, contact southern California bankruptcy lawyer Matthew B. Tozer. Copyright 2010 |