December 17, 2017

Can I Go Bankrupt Without My Spouse?

Can one spouse file a bankruptcy case without the other spouse?  The answer is “yes.”

Who is an “authorized user” on the account?

It is common these days for one spouse to generally be unable to pay their debts as they become due, while the other spouse is not liable for those debts. In this regard it is important to understand the  concept of “authorized user.”

Just because the spouse’s name appear on a credit card does not mean that that peson has any obligation on the card.  The spouse obtaining the card can designate his or her spouse as an authorized user.  This does not obligate the spouse authorized to use the card for charges made on the card.  In order to be liable, a person must agree in writing to be liable; e.g. by signing the credit application.

Research who signed which credit agreement

Thus, a careful analysis of  who signed what is in order. If this analysis reveals that one spouse is liable for all or virtually all of the debt, then this person can file a bankruptcy case in order to obtain a fresh start, but the other spouse need not file. Only the spouse liable for the debt files a bankruptcy, but it is important to understand that the Bankruptcy Code requires that the debtor file a budget that includes household income and expenses.

While the non-filing spouse does not file for bankruptcy, and his or her credit is not affected by the spouse’s filing, the non-filing spouse’s income and expenses must be included in the budget portion of the bankruptcy petition.

What about a joint mortgage?

As long as the borrowers are current on payments on the day the bankruptcy is filed, the mortgage company can’t do a thing because there is no breach of the mortgage contract. This is true whether one borrower or both borrowers file. If the borrower(s) are behind on payments, there is trouble regardless of the bankruptcy. This is where a bankruptcy counseling session comes into play. In that session, I will ask questions to evaluate what asset protection strategies are available as well as giving an opinion on whether bankruptcy is a good option for the given circumstances.

Joint credit impaired, but not individual

The non-filing spouse’s credit is not affected by the spouse’s bankruptcy.  As a practical matter, the spouse’s bankruptcy filing will impair the couple’s ability to obtain joint credit, and the non-filing spouse may wind up applying for credit due to a higher credit score and thus cheaper access to credit.

However, for many of my bankruptcy clients, this has been the case for some time, because the spouse with the financial problems has limited or no access to credit even prior to a bankruptcy filing.

People asking questions like this one are best served by a bankruptcy counseling session, where the attorney can evaluate the situation for each individual as well as the family. Bankruptcy is too complex to figure out by yourself.