How Bankruptcy Affects Spouses

How Bankruptcy Affects Spouses

Bankruptcy is a complicated procedure, and many parties are involved.  In addition to creditors these often include spouses as well as ex-spouses.  There is much confusion as to the rights a non-filing spouse may have because of differing property laws of the many states.

One of the first considerations is what is the law regarding your states marital community property. This concept includes tangible assets, real estate, and monies earned by both spouses while married.  What is not included is assets that a spouse may have attained during the marriage.  Debts however are assumed to be community property and as such make each spouse uniformly responsible.

Some states such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin require that all community property is belongs to the bankruptcy. However any property acquired by the spouse subsequent to the bankruptcy is not included.

When both spouses file Chapter 7 they are both released by the discharge. When only one spouse files the creditors can collect from the spouse not filing.

When both spouses file Chapter 13 the combined assets are incorporated the repayment of the creditors.  When only one spouse files all property of both spouses receive protection the “automatic stay” under the plan.  When the plan finished and discharged the creditors may once again pursue the non filing spouse.

When a divorce takes place, and both ex-spouses are responsible for a debt, the spouse not filing becomes exclusively accountable for the debt. Even a divorce judges ruling doesn’t absolve either party.

In a Chapter 13 the ‘automatic stay” will not change during a divorce. When the discharge is made, however, creditors are free to chase the non-filing spouse for what monies are still owed.