Does My Spouse Have to File Bankruptcy?

Leaving the spouse out of the bankruptcy may have benefits.
Leaving the spouse out of the bankruptcy may have benefits.

Bankruptcy lawyer can helped many with difficult bankruptcy questions. If you file a Chapter 7 Bankruptcy you do not need to file joint with your spouse, however, only your individual debts will be discharged (eliminated).  If you have cosigned debt with your spouse those debts need to be paid.  In fact you will probably want to reaffirm those debts.  Reaffirmation is the process of signing a legal obligation to repay the debt. It is a legal document filed with the Court putting forth the terms of your agreement to pay. It becomes legally binding and if you default, it can affect your credit score.  The credit score of you and your spouse, in regards to that cosigned debt, should not be affected by your Bankruptcy filing as long as the cosigned debt continues to be paid on time.

 Chapter 13 and Your Spouse

If you file a Chapter 13 Bankruptcy, you also can file without your spouse.  You may choose to pay a cosigned debt in full through your Bankruptcy or have your spouse pay that debt direct to the creditor.  Paying a debt in full through the Bankruptcy is not advisable unless it is a secured debt such as a car and the payments are behind and you wish to protect that property.  The reason is not generally advisable is that the Chapter 13 Trustee charges a flat rate of around 5% of your total debt as their fee for administering the plan.  The Trustee acts as your accountant and makes sure that all of your debts are paid according to the plan filed with the Court.  If you can avoid adding additional debt to your case that can be paid direct by your spouse, it will save you in Court costs.

Bankruptcy and Co-signed Debt

If you do want to pay a cosigned vehicle in your bankruptcy to protect that property from repossession, you should probably pay the debt in full with contract interest rate to protect your non-filing spouse.  For example, if you file Bankruptcy to protect your vehicle you can normally cram the interest rate down to 3 %.  However, if you are cosigned with your spouse on that vehicle and your spouse does not wish to file with you, you would have to pay full contract interest rate in order to “protect your cosigner.”  In other words, your spouse cannot reap the advantage of the low interest rate if he or she is not also in the Bankruptcy.  Hypothetically, if you did pay only the 3% interest required in Bankruptcy and your original contract rate was 23%, they could go after your spouse for the 20% interest that was not paid in the Bankruptcy.  They usually only do this after the Bankruptcy is over.  However, it is a risk and one would have to think carefully whether not paying full contract interest rate is worth the risk of the creditor pursuing your spouse for the unpaid interest after the Bankruptcy case is over.

Benefits of Filing Bankruptcy without the Spouse

The benefits of not filing with a spouse are many.  Protecting one spouse’s credit is always a good idea if possible.  Also, if you are in a Chapter 13 Bankruptcy you would have to cut up all your credit cards.  If your spouse does not file with you, he or she can have a credit card that can be used in emergency situations.  Many people need a credit card to rent a car, for instance.  It is helpful if one spouse is freed up to be able to incur new debt, like get a new vehicle, without the hassles of getting Court permission, if it becomes necessary.

A lot of people assume that if you are cosigned with your spouse on your home mortgage and are facing a foreclosure and want to file a Chapter13 bankruptcy to stop that foreclosure that you must file jointly with your spouse.  That is not true.  In fact even if a spouse is not on the mortgage loan, but on the deed, that spouse can file a Chapter 13 bankruptcy to protect the home.  In a Chapter 13 Bankruptcy, the mortgage arrears are put into a repayment plan and you continue to pay the mortgage note direct to the mortgage company.  It doesn’t matter which spouse is in the plan because the debt gets paid the same no matter what.