I Am Married and Need to File Bankruptcy: Does My Spouse Need to Know?

marriageBoth single and married consumers find themselves in need of a fresh start through bankruptcy protection.  A married person can file for bankruptcy by themselves, just like they can file a separate income tax return if they choose to. 


What happens when a married consumer wants to file bankruptcy?  Does the spouse have to file also?  And what happens to their credit? The answer to the first question has already been answered:  No, because a married person can file bankruptcy without the spouse.  The answer to the second question is that the non-filing spouse continues their relationship with their creditors just as they did prior to the spouse filing their bankruptcy.


The first issue is whether you are residing in the same household as your spouse.  If you are living separate and apart, then you designate your household size without the spouse’s income being included.  You would only need to document the amount of money, if any, the spouse regularly gives to you, whether in the form of alimony, spousal support, or any bills regularly paid by the non-filing spouse.


If you are living together, then the Court considers marriage to be a financial relationship as well as a legal one.  This does NOT, however, mean that the non-filing spouse will “ruin their credit” if their spouse files.


A recent case from the United States Bankruptcy Court in the District of Colorado illustrates some of the issues that can arise when a spouse files for bankruptcy without their marital partner. Note that this was a “Chapter 13” bankruptcy, meaning that the debtor was proposing a plan of debt reorganization.  But the same logic would apply to a Chapter 7 bankruptcy, where the debtor seeks a discharge of debt without paying back over time.  You can read the full text of the opinion here.


Michael Haroldson and his spouse lived separate financial lives.  They did not combine their income, or their expenses.  They own no joint bank accounts, credit card accounts, car loans or other debts.  They did “split” household expenses, like utilities and groceries.


Mr. Haroldson lived with his spouse in a home which she owned outright, not subject to a mortgage.  She paid the property taxes out of her income, which consisted of retirement (public employee retirement and an IRA).  She also had separate expenses for “non-household” debts.


In his bankruptcy filing, Mr. Haroldson stated his wife had “no income” and “no expenses,” and that he lived in a household of “one” person.  He also claimed the standard mortgage deduction for the house, even though the house was paid for and did have a mortgage payment at all.


The Court started off the decision by defining a “household” as “a family living together” or a “group of people who dwell under the same roof.”  Therefore, a household expense should be defined as any expenditure of money commonly incurred by the household.  Stating that your non-filing spouse has “no income” when they plainly do have income is inaccurate.  Debtors are always required to provide accurate information to the Court when filling out their schedules.  The Court went on to explain that “disclosure a non-filing spouse’s income is necessary, not only to show the debtor is committing all of their disposable income to the plan, but also to show feasibility and good faith, two specific requirements of the bankruptcy code.


The Court required the Debtor to amend the schedules to show the non-filing spouse income and expenses, even though it would not make any difference in the debtor’s plan payment.  (In other words, by the time the wife’s income was calculated, her separate expenses consumer all of her income, so that she could not contribute any money to her husband’s plan).


And, the Court pointed out, stating a household size of “one” when there were two people living together in the same house was also inaccurate.  Again, the Debtor cannot ever rely upon inaccurate documents in filing a bankruptcy.


The lesson here is one of full and accurate disclosure to the Courts when filing for bankruptcy.  Your marital status, your household size, the non-filing spouse income and expenses, all information must be correctly presented.


I have filed hundreds of bankruptcy petitions for married consumers where the spouse filed, and hundreds more where the spouse chose not to file. What is best for each person can only be determined on a case by case basis.  You can call me at 216-642-8234 to schedule an appointment to discuss bankruptcy options that make sense for your situation.

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