Individual Bankruptcy vs. Joint Bankruptcy
Consumers can find themselves buried under mountains of debt for a host of different reasons, ranging from job loss to medical bills, high interest rates to low wages.
Debt can pile up quickly. When it takes over your life, filing for bankruptcy can provide welcome relief and an opportunity to start over. Bankruptcy can eliminate certain types of debt and stop wage garnishments, property foreclosure, and creditor harassment without permanently destroying your credit.
One of the first decisions that have to be made concerns what type of bankruptcy is best for your situation. The most common are filed under Chapter 7 and Chapter 13 of the federal Bankruptcy Code. If you are married, then you must decide whether to file by yourself (individually) or with your spouse (jointly). Chapter 7 involves passing a means test which measures financial ability to pay creditors based on disposable income, minus certain allowable expenses. In a joint bankruptcy filing, the financial situations of both spouses are examined. This combined income makes it harder to pass the means test, usually putting an end to the possibility of filing for joint bankruptcy. However, there are nuances to this test, and a joint bankruptcy may still be beneficial if both spouses have low or moderate income.
To make the most informed decisions for your circumstances, consult the Fayette County bankruptcy attorneys at Bunch & Brock. Based in Lexington, we have over 35 years of experience advising people throughout Kentucky about how to best address their situation. If you are burdened with debt, you need the calm competence of a skilled legal team in your corner. Contact us to schedule a consultation. Call 859-254-5522 or fill out this online form.
How Much Debt?
When you file for bankruptcy with your spouse in an equitable distribution state like Kentucky, it eliminates your separate debts, your spouse’s separate debts, and the jointly-held marital debts. In contrast, when you file for bankruptcy by yourself, it eliminates your separate debts and your share of the joint debts, but your spouse remains liable for his or her share (as well as his or her own separate debts) and may be pursued by creditors for payment. Therefore, filing a joint bankruptcy petition is usually the better option if a couple has a lot of joint debt. However, if the joint debt is minimal, but one spouse has a lot of individual debt, then it is likely better for him or her to file alone. Since there are time restrictions on how frequently bankruptcy can be sought, this plan of action safeguards the non-filing spouse’s option to file in the future.
How Much Property?
All joint property and all separate property are included in a jointly-filed bankruptcy petition. That’s why it’s important to determine whether there are enough exemptions available to protect all of the subject property. Bankruptcy law allows married couples filing jointly to each claim a full set of exemptions, and any property that is exempted remains theirs to keep. Exemptions are allowed up to certain amounts for assets such as insurance, pensions, public benefits, wages, tools of the trade, personal property, homesteads, and a few other miscellaneous items. Filing jointly allows a couple to take double exemptions. However, if one person has a significant amount of non-exempt separate property, then it may be best not to file jointly in order to protect those assets since filing separately means that the non-filing spouse’s separate property is not part of the action.
Filing a bankruptcy petition requires payment of certain fees, which are the same whether the petition is for one person or for a married couple. By filing a joint bankruptcy with your spouse, you will be able to save money compared to filing two separate bankruptcies. It is also more efficient to file one joint bankruptcy because you only need to gather all the necessary information once. Petitions must be submitted along with financial documents showing, at a minimum, income, property, assets, debts, and expenses.
We Can Help
General explanations are useful but should not be relied upon when determining the rights and obligations of spouses considering bankruptcy. Each bankruptcy is unique, and it’s important to have an assessment of your situation in order to ensure the best path is followed. For questions regarding the advantages and disadvantages of joint and individual bankruptcy, consult the experienced Lexington, KY bankruptcy lawyers at Bunch & Brock. We have guided many people through the bankruptcy process efficiently and effectively. Let us put our knowledge and experience to work for you to make the best plan for eliminating or repaying your debts. We encourage you to contact our office by calling 859-254-5522 or filling out this online form.