Definitions

Married people can file separate bankruptcies, or one spouse can file bankruptcy alone. Whether to file jointly or alone is a complicated decision, and several factors weigh into it. The biggest factors are how the debts are split up between husband and wife, how much income each spouse makes, and who owns the property.

 

WHAT ABOUT JOINT DEBTS?

If a debt is joint, then both spouses owe 100% of it. This is true even if it is only one spouse that incurred the debt. If your name is on the bill, then you owe it. One common place of confusion is authorized users on credit cards. If you are an authorized user on a credit card, then you are completely liable for the full balance of the credit card, whether or not you charged anything on the card. Tax debts are also joint for couples that file joint income tax returns. You can pursue an innocent spouse defense with the IRS if everything is your spouse's fault, but bankruptcy is often cheaper and more efficient than dealing with the IRS.

In Minnesota, medical debts of spouses are always joint debts. Minnesota Statutes Section 519.05 provides that spouses are jointly liable for medical debts, and debts for household necessities. https://www.revisor.mn.gov/statutes/?id=519.05 . Even if a medical bill comes with only one spouse's name on it, the other spouse still owes it. If there are medical debts, then it is usually best to file a joint case. I represented a wife who filed for bankruptcy and discharged some medical debts that only had her name on them, and she got away with it for several years. Eventually, however, the hospital called for the husband that didn't join in the bankruptcy and began the collections process for those debts. I have seen this happen as far out as five years after the bankruptcy filing.

 

WHAT ABOUT INCOME? WHY DOES MY SPOUSE'S PAYCHECK AFFECT MY BANKRUPTCY?

Even if only one spouse wants to file for bankruptcy alone, the courts will take into account the other spouse's income. This process is called the Means Test. If the other spouse is making enough money, then you will have to file a Chapter 13 bankruptcy, which includes a repayment plan. This is true even if your spouse doesn't file the bankruptcy with you.

This process whereby courts look at the income of a spouse who may not even owe the debts, and decide whether that spouse's income must be paid into a Chapter 13 Plan was added with the 2005 law change. Credit card companies lobbied for this new law in the hopes that they could make other people pay the debts of bankrupt borrowers. I find it unfair because oftentimes the spouse with the higher income doesn't even know about the debts, and didn't participate in creating them. For example: the debts might be from before the marriage, or from a failed business that only one spouse operated, or from a secret gambling, alcohol, or shopping habit. Is it fair to make the other spouse pay in these circumstances? Wouldn't it be better to leave that decision to the married couple?

Regardless of your situation, your attorney will have to do a means test to prove that you are not required to file a Chapter 13. Expect your attorney to ask you for pay stubs or other information about your spouse's income, even if they don't plan to join the case.

 

WHAT ABOUT PROPERTY? SOME OF IT IS JOINT, AND SOME OF IT WE OWN SEPARATELY.

If you file together, then you may be able to keep more property because each spouse gets his or her own set of exempt property. Exempt property is the property that you get to keep after filing for bankruptcy. If only one spouse files for bankruptcy, then you only get one set of exempt property. Your lawyer will go through your property with you and figure out what you can keep, and what is not exempt. If one of the spouses has property that isn't exempt, then it is often wise for that spouse not to file for bankruptcy. This is because only the property of the person that is actually filing for bankruptcy goes into the bankruptcy estate, where it will be distributed to creditors. Thus having only one spouse file for bankruptcy can be a good way to protect non-exempt assets. If you want to do a joint filing to protect your spouse's assets, then make sure you talk to an attorney to verify that the property isn't community property, or jointly owned. I often talk to people who think that a piece of property is not jointly owned, but legally speaking it is jointly owned.

If you are thinking about filing bankruptcy, then it is important that you do not transfer any property out of your name. Transferring things out of your name while you are insolvent is called a fraudulent transfer and can have very serious consequences, even if you never end up filing for bankruptcy. Talk with an attorney before taking anything out of your name, or putting money in anyone else's bank account.

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