Bankruptcy is something that you can use if you encounter a time in life where you have severe financial problems. If you are married and have a lot of debt in your name, filing for Chapter 13 bankruptcy individually might be better for you than filing jointly. If you are wondering how this will affect your spouse, here are three things you should know.
Both Incomes are Considered
When a married person files for bankruptcy jointly or individually, the income from both spouses is used in the calculations. Calculations are made for Chapter 7 and Chapter 13 cases, but they are used for different purposes.
- Chapter 7 – calculations of income are used to determine a person's eligibility for using this form of bankruptcy. If a person (or couple) has income that is higher than the standard median income in the state, the person will not be eligible for Chapter 7.
- Chapter 13 – for this form of bankruptcy, income is used to determine your disposable income. This calculation is used to come up with the amount of money you will have to pay for the bankruptcy. Chapter 13 is the repayment plan form of bankruptcy, and the amount you repay is based on how much disposable income you have.
Both spouses' incomes are used for Chapter 7 and Chapter 13 cases, and it does not matter if you file alone or together.
One thing you may want to ask your lawyer about is something called the marital adjustment deduction. This deduction may lower your disposable income, and it may even help you qualify for Chapter 7 bankruptcy. It lets you deduct certain types of expenses that the non-filing spouse pays, and this can be very helpful for reducing your payments through a Chapter 13 bankruptcy.
Before you decide to file, you should talk to your lawyer about how the bankruptcy would work, and what debts would be included in it.
Your Spouse will be Responsible for Joint Debts
One of the most important issues to know about this is that you can file individually for Chapter 13, but this will not forgive or include any of your spouse's debts. If you have debts that are in your name alone, they can be included on the bankruptcy. If there are debts in your spouse's name only, they cannot be included on the bankruptcy.
While you can technically include debts that are in both names on your bankruptcy, this doesn't mean they will be forgiven or included in your repayment plan. This does offer legal protection for you, but not for your spouse.
Creditors will no longer have the legal right to come after you for these debts, but they can go after your spouse if the debts include your spouse's name. You may still end up getting calls from debt collectors or letters in the mail for debts that are jointly owned.
Your Spouse's Credit will not be Affected
Finally, you will probably wonder how this will affect your spouse's credit. You are probably aware that filing for bankruptcy has negative impacts on a person's credit report and credit score, but you will be glad to know that filing alone will not harm your spouse's credit.
Your spouse's credit will not be affected in any way if you file for bankruptcy, unless you have joint debts that your spouse stops paying.
Most people view bankruptcy as a last resort, and it is often the only option people have. If you are struggling with heaps of debt and want to file without your spouse, click here for info or contact a bankruptcy lawyer today to find out more information.