One important thing to remember here is that debt will only be discharged in bankruptcy with respect to the individual who filed bankruptcy! In other words, if one spouse does not wish to file but has joint credit card debt with the filing spouse, the credit card company can and will pursue collecting the debt from the non-filing spouse.
Disclaimer: if you are currently engaged or considering getting married but are also considering bankruptcy, please seek legal advice about bankruptcy qualifications prior to jumping on a plane, flying to Las Vegas, and having Elvis perform a marriage ceremony for you.
During an initial bankruptcy consultation, the first thing we look at to determine whether a client qualifies for a chapter 7 or chapter 13 bankruptcy is household income versus household expenses as it relates to the number of dependents in the household.
Household income includes both spouses, even if one spouse does not file bankruptcy.
One of our first considerations when evaluating any bankruptcy case is whether or not the household income is above the "median income" for the family size in the State of Iowa.
If the household income is over the median income, the client may only qualify for a chapter 13 bankruptcy but still may qualify for a chapter 7 bankruptcy.
Remember, a chapter 13 is a payment plan in which some or all of the debt is repaid.
In a chapter 7, there is no payment and the debt is completely discharged.
This is where it gets a little tricky.
Again, when determining whether a client qualifies for chapter 7 or chapter 13 bankruptcy, we must consider both spouses income, or household income, to determine if the bankruptcy will be a chapter 7 or chapter 13.
If a client qualifies for a chapter 7 based on both spouses income, the process remains relatively simple.
The filing spouse has the ability to file a chapter 7 and discharge all of his or her debts.
The non-filing spouse is not affected by the bankruptcy and thus the non-filing spouse's credit is not negatively affected.
If, however, after examining the income/expense analysis based on both spouses' incomes the filing spouse only qualifies for a chapter 13 bankruptcy, the circumstances of attempting to file only one spouse can be more difficult.
This is where we see a lot of non-filing spouses get upset because part of the non-filing spouse's income may be used to pay the debts of the filing spouse.
The reason this can happen is because the amount of the chapter 13 plan payments are determined based on the household income and the household expenses.
As such, the intended non-filing spouse's income and finances will be counted towards the household income.
Not all is lost when one spouse decides to file a chapter 13 while the other spouse does not.
There can be numerous benefits in this scenario.
Actually there are too many to cover here and each scenario is so fact specific that the only way to look at it is to come in and have a bankruptcy attorney go over your situation.
Just like chapter 7 bankruptcy, in a chapter 13 if one spouse files while the other spouse does not file, the bankruptcy will not affect the credit report of the non-filing spouse.