Just as with filing income taxes, there are advantages for married couples to file jointly for bankruptcy instead of individually.
Can spouses file separate bankruptcies? Yes, federal bankruptcy law allows a married person to file an individual bankruptcy, but there are pros and cons to separate bankruptcy filings.
Preparing for a bankruptcy filing requires close scrutiny of your financial situation and determining how federal and state bankruptcy law may be applied to your benefit. An experienced bankruptcy lawyer at Florida Law Advisers, P.A., can help you conduct a review of your and your spouse’s debts and income and make the best financial decisions for both of you. We can guide you through the bankruptcy process so you can rebuild your financial standing and move forward with your life.
Contact us today for a free consultation with an experienced Orlando bankruptcy attorney.
The Advantages of Filing a Joint Bankruptcy Petition
One of the biggest advantages for a married couple to file jointly is that a joint filing stops bill collectors from contacting either of you and allows you some space to resolve your financial problems and make a fresh start. Arguing over finances is widely considered one of the most common sources of conflict in marriages. An Orlando bankruptcy attorney with Florida Law Advisers can evaluate whether the majority of your debts are joint debt or separate debts and whether the assets held by you and your spouse are primarily marital property or separate property. An attorney can discuss whether filing jointly offers an advantage.
Couples pay the same court filing fees and other costs as individuals when they file bankruptcy. The whole process is more efficient because you only prepare one set of documents and go through the same steps of filing and hearings as an individual would.
A joint bankruptcy is also more thorough in most cases. If you have shared debt — such as a car loan or credit card debt — it may be discharged in bankruptcy. However, if only one spouse files, the non-filing spouse who is not a part of the bankruptcy would still be responsible for their share of community property debts incurred. The non-filing spouse may still be required to pay off their portion of those debts.
In a joint Chapter 7 liquidation bankruptcy, you will each be able to claim a full set of property exemptions, which usually means you are able to keep more property. For example, Florida’s personal property exemption, which allows you to choose personal property worth up to $4,000 to be excluded from liquidation sales, is worth $8,000 for joint filers.
Finally, filing a joint bankruptcy is a strategic decision many qualifying couples make before seeking a divorce. During a divorce, the couple must propose to the court an equitable division of marital property and debt. A joint bankruptcy may eliminate most, if not all, of your credit card debt, personal loans, medical bills, and other unsecured, dischargeable debts.
Pros and Cons of Filing for Bankruptcy Separately
Sometimes it makes sense for each spouse to file separately for bankruptcy. Separate filings are helpful if one spouse has a good credit rating. Filing separately allows each spouse to discharge their separate debt without affecting the other spouse’s credit rating or the status of their bankruptcy case.
With separate filings, each spouse may be able to avoid income maximums that could prevent them from qualifying for Chapter 7.
Filing separately also provides each spouse additional protection from the Chapter 13 bankruptcy co-debtor stay for all their debts. This is the injunction that arises automatically upon filing for bankruptcy to prevent lenders from seeking to collect on existing debt. If only one spouse files for bankruptcy, the co-debtor stay only applies to certain types of debts.
Separate bankruptcy filings provide each spouse more individual control of their money, which is more important to some couples than to others. Each spouse is able to make decisions that are best for them individually, and they can keep their financial information private from each other.
The disadvantages of filing for bankruptcy separately include:
- Higher Cost, as each spouse will have to pay filing fee costs and attorney fees to hire their own bankruptcy attorney.
- Inconsistent treatment of debts and assets, which can make the bankruptcy process more complicated.
- Loss of certain bankruptcy exemptions, such as some applications of the co-debtor stay, available to married couples filing jointly.
In addition, if the couple divorces, separate bankruptcy filings can make an equitable division of assets and debts more difficult — and contentious.
When Only One Spouse Files for Bankruptcy
There may be several reasons why one spouse files for bankruptcy and the other doesn’t. You may:
- Have a significant difference in your income or spending habits
- Have significant individual debts in your name only
- Keep finances separate
- Have a business only one of you owns
- Have a prenuptial agreement
- Expect one spouse to receive an inheritance soon (an inheritance received within 180 days of a bankruptcy filing may be used by the bankruptcy trustee to pay creditors)
If your spouse has recently filed for bankruptcy on their own, they may not be eligible for another discharge. Bankruptcy law requires years between filings with debt discharges to help prevent abuse of the system.
Conversely, it could be that your spouse has never filed for bankruptcy, and you want to preserve that option.
But if you are married and only one spouse files for bankruptcy, the other spouse will feel the impact in several ways. As the non-filing spouse, you should expect:
- Negative Impact on Your Credit Score – If you have joint debts that the filing spouse restructures in Chapter 13 or believes will be discharged, any missed payments because of the filing will go on your record.
- Money Taken from Joint Bank Accounts – Under Chapter 7 or Chapter 13, a debtor can declare a set amount of cash as sheltered property exempt from seizure for debts. If you have a joint account, the trustee may take any cash available above the sheltered limit ($10,000 in some cases) to pay creditors. If you can document your contributions to the account, you may be able to claim a portion of the funds as your sole property.
- Seizing Transferred Funds – If you transfer money from a joint account shortly before your spouse’s bankruptcy filing, the trustee may challenge the move as an attempt to hide money that should go to creditors. You could have the money seized and face sanctions.
- Loss of Privacy – The documents your spouse will need to file for bankruptcy will include information about your salary. Once filed, this will be part of the public record.
A bankruptcy filing leads to a change in lifestyle. Under Chapter 7, personal property is sold to pay debts. In a Chapter 13 bankruptcy, the debtor proposes a debt repayment schedule to pay off debt over three to five years. This may change how you spend your money and even where you live. When one spouse files for bankruptcy and the other spouse does not, meeting the requirements of the filing will likely add stress to their relationship.
Get in Touch with a Bankruptcy Attorney in Orlando
Married couples in Florida who face overwhelming debt have the right to file jointly for and seek a fresh financial start. In many cases, a couple will file for bankruptcy jointly, but there may be advantages to filing separately. What’s best depends on your financial circumstances.
An Orlando bankruptcy attorney at Florida Law Advisers, P.A., can conduct a thorough review of your situation and advise you about filing for bankruptcy jointly or separately to rebuild your financial standing. Florida Law Advisers, P.A., understands how married couples can take full advantage of the protections provided under Florida and federal bankruptcy law. Our objective is to help you make the best financial decisions based on your unique situation so you can move forward with your life.
We understand that clients need solutions, not overpriced legal fees. Our firm’s mission is to deliver high-quality legal representation at a reasonable cost. If you have debt you cannot handle, don’t put off dealing with it and fall farther behind. We are here to help you now.
Contact Florida Law Advisers today for a free and confidential consultation about your debt problems and your options regarding bankruptcy and marriage.