When one spouse in a married couple is in financial trouble, the other spouse is likely to be in a similar position. Married couples who are considering bankruptcy generally have three options for bankruptcy filing:
- Spouses file a joint petition for bankruptcy,
- One spouse files individual petition for bankruptcy, or
- Both spouses filed separate individual petitions for bankruptcy.
Chapter 7 and Chapter 13 bankruptcy filing is a major decision but can be a great opportunity to recover from debt and get a new start. How you file as a married couple can have a big impact on your financial situation. If you have any questions about bankruptcy for spouses, talk to your Missouri bankruptcy attorney. Contact the Joshua Wilson Law Firm today at 816-331-9968.
Filing for Bankruptcy Separately or Jointly as a Married Couple
The best option for your bankruptcy filing will depend on a number of factors, primarily what assets and debts are owned jointly or separately. Missouri law presumes all property received by either spouse during a marriage is jointly-owned marital property. Separate property is generally property owned by either spouse before the marriage.
When spouses have a significant amount of separate property and individual debt, it may be more beneficial for only one spouse to file for bankruptcy or each spouse to file individually. If most of the debt and property is shared or joint, it may be better for both spouses to file jointly for bankruptcy.
Business debts and assets are also a major factor in calculating how to file for bankruptcy. Before making any important bankruptcy decisions, talk to an experienced Missouri bankruptcy attorney about your options.
Chapter 7 or Chapter 13 for Spouses
One or both spouses should consider whether the best option is Chapter 7 bankruptcy (straight bankruptcy) or Chapter 13 bankruptcy (wage earner's bankruptcy). In some cases, it may be better for one spouse to file for Chapter 7 and the other spouse to file for Chapter 13.
Chapter 7 filing has a trustee take over and sell assets, distributing the proceeds to creditors. After three to six months, the process is over and the remaining dischargeable debt is erased. However, in order to qualify for Chapter 7, the individual or spouses need to pass the “means test,” which is primarily based on the debtor's current income.
Chapter 13 bankruptcy allows the debtor to repay all or part of their debt over time. The repayment period may depend on the amount of debt and the debtor's monthly income, generally three to five years. The benefit of Chapter 13 bankruptcy is that the debtor may be able to keep most of their property, like a home and vehicle.
Providing Financial Information for Both Spouses
In order to complete either Chapter 7 or 13 bankruptcy filing, married couples need to submit required financial information, regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. This includes submitting the following information:
- A list of all creditors and the amounts and nature of their claims;
- The source, amount, and frequency of the debtor's income;
- A list of all of the debtor's property; and
- A detailed list of the debtor's monthly living expenses, (food, clothing, shelter, utilities, taxes, transportation, medicine, etc.).
If only one spouse files individually, the income and expenses of the non-filing spouse are also required for the court, trustee, and creditors to evaluate the household's financial position.
Financial Impact on the Non-Filing Spouse
When only one spouse files for bankruptcy, it may still have an impact on the spouse. A bankruptcy will generally not affect your non-filing spouse's separate property or credit report. However, shared debt that is discharged may show up on your spouse's credit report. Similarly, creditors may come after shared assets for the filing spouse's share of the property.
If the non-filing spouse has shared debts, the non-spouse may still be liable for their portion of the debt even if the filing spouse's portion of the debt is discharged. For example, a couple's joint credit card account is $20,000 in debt. If one spouse goes through Chapter 7 bankruptcy, they may eliminate their $10,000 share of the credit card debt. However, the other spouse will still be liable for their share of the remaining $10,000 in debt.
It is also important to be careful about any property transfers to your spouse in the year before filing. The bankruptcy trustee can reverse transfers made within a year of filing for bankruptcy if the transfer was made for less than fair market value.
What to Know Before Spouses File for Bankruptcy in Missouri
Bankruptcy can give you a chance to reorganize your financial life to give you a pathway out of debt. However, you should understand your options and responsibilities before deciding whether to file together or individually. If you have questions about filing for bankruptcy in Missouri, contact the Joshua Wilson Law Firm in Raymore today. Contact us online or by calling (816) 331-9968. We maintain a virtual capable law office to keep you safe and connected.