Debtors who could benefit from bankruptcy often hesitate to consider bankruptcy because of the numerous myths and misconceptions about the process and about life after bankruptcy. One common misconception that people have is that if one spouse files for bankruptcy the other spouse is required to file as well. The truth is that your spouse does not have to file for bankruptcy just because you file; however, your filing could directly impact your spouse if you have co-signed for credit or if you jointly own property.
If you choose to file for bankruptcy protection there is no legal requirement that forces your spouse to file a joint petition along with you. Often, only one spouse needs bankruptcy protection. If your spouse does not need to file bankruptcy there may be no reason for him or her to do so; however, it is important to understand how your bankruptcy can affect your spouse.
How couples handle their finances and property can differ significantly. Some couples keep everything separate while others combine everything. Still other couples use a “Yours, Mine, and Ours” system. The way that you and your spouse handle your finances as well as the property laws in the state where you are a resident at the time you file for bankruptcy will determine to what extent, if any, your bankruptcy petition will impact your spouse.
When you file for bankruptcy you are entitled to use exemptions to protect property owned by you at the time of the filing. Exactly what property is considered yours depends on whether you live in a community property state or a common law property state. Fortunately, New Jersey is a common law property state. Typically, this means that if your name is on the title to property it is yours. If the title has your name and your spouse’s it is jointly owned. Anything else is your spouse’s property. In a community property state all property is presumed to be owned by both parties, essentially putting more property at risk in a bankruptcy.
If you do not have sufficient exemptions to protect all jointly owned property in a chapter 7 bankruptcy the trustee may be able to force the sale of the property even though your spouse owns half of the property. Although your spouse must be compensated this is likely not a welcome result. Furthermore, if you have joint debts, the bankruptcy may discharge you from the debt but if your spouse does not file he or she will remain liable for the debt post-bankruptcy.
To find out how your bankruptcy will affect your spouse consult with an experienced Monmouth County bankruptcy attorney.