We get this question a lot. After all, one of the cornerstones of marriage is sharing. While the short answer is no, you do not have to file bankruptcy with your spouse, the more convoluted legal answer is heavily dependent on your personal circumstances, because there are situations where both spouses filing for bankruptcy is preferable. Note that if married debtors do decide to both file, they can file a joint petition, which keeps the cost down as it is considered legally to be one case, with one fee.
The rules are different for community property states, but in equitable distribution states like Kentucky, debts incurred by one spouse belong only to that spouse. There are exceptions for debts incurred for basic necessities that benefit the marriage (such as clothing, shelter, food, etc.) and for debts that were jointly undertaken. For example, if title to a property is put under both spouses’ names, or if both spouses’ credit information was considered by a creditor before a sale was made or a loan was given, then the responsibility is jointly held.
So, when one spouse files for an individual bankruptcy, it erases their separate debts and their share of joint debts, but their non-filing spouse remains liable for his or her share of the joint debts and can be pursued by creditors (unless the bankruptcy is filed under Chapter 13 and the proposed payment plan lists those joint debts in full). Of course, the non-filing spouse is also still liable for his or her own separate debts. Therefore, seeking a joint bankruptcy is usually the better choice if a married couple has a lot of joint debt. If one spouse has a lot of separate debt, then it is typically better for him or her to file individually. Doing so should not have any effect on the credit report of the non-filing spouse.
Another aspect that should be weighed carefully concerns how property is held. If property is titled to only one spouse and that spouse does not file for bankruptcy, the property is not part of the bankruptcy estate. In a joint bankruptcy under Chapter 7, all separately held property and all jointly held property become part of the estate subject to the trustee’s power of liquidation. That means the trustee has the power to sell any property that exceeds the value of Kentucky’s exemption laws, which allows certain amounts for assets such as insurance, public benefits, wages, pensions, personal property, homesteads, and more. Filing jointly allows a couple to take double exemptions, so it is critical to figure out how much of their property can be saved through these exemptions.
General explanations are valuable, but should not be depended upon when trying to establish the rights and responsibilities of spouses considering bankruptcy. If you are married and either you or your spouse are thinking about filing bankruptcy, it is wise to seek the counsel of a bankruptcy lawyer who can help you evaluate your current financial situation and determine the best course of action. Based in Lexington, the KY bankruptcy attorneys at Bunch & Brock have more than 35 years of experience handling personal bankruptcy cases across Kentucky. To get started, or if you have any questions about this topic, call us at 859-254-5522. You can also reach us by filling out this online form.
