When financial troubles loom and the weight of debt becomes unbearable, the thought of filing for bankruptcy can offer a glimmer of hope. However, when it comes to married couples facing financial hardships, the decision to file for bankruptcy can become even more complex. One common question that arises is whether one spouse can file for Chapter 13 bankruptcy without involving the other. In this article, we’ll explore the reasons why someone might choose to file Chapter 13 bankruptcy individually, the details of Chapter 13 bankruptcy, the process of filing without a spouse, and the factors to consider when making this decision.
Reasons Why Someone Would File Chapter 13 Bankruptcy Without Their Spouse
Separate Debt
One significant reason for filing Chapter 13 bankruptcy individually is when all of the debt in question is separate or premarital debt. In Maryland, unlike community property states, debt incurred before marriage typically remains the responsibility of the individual who incurred it. If your spouse is not liable for your debt, it may make sense to file separately.
Moreover, if you and your spouse have a prenuptial agreement that clearly outlines the separation of debt, this agreement can further protect your spouse from being responsible for your financial obligations.
Your Spouse is Ineligible
Another scenario is when one spouse is ineligible to file for Chapter 13 bankruptcy. This could be due to exceeding the debt limit, having high non-dischargeable debts such as child support or alimony, or having had a prior bankruptcy within the past few years without eligibility for discharge. In such cases, the spouse with eligibility issues may choose not to file, while the other spouse proceeds with the bankruptcy process.
Nonexempt Assets
Filing Chapter 13 without your spouse might be a strategic move to protect their nonexempt assets that are not jointly owned. This decision can help safeguard valuable assets from the reach of creditors.
Credit Score
If your spouse has a good credit score, it might be beneficial to file for Chapter 13 individually. Filing separately ensures that the bankruptcy filing only affects the credit of the filing spouse and should not negatively impact the non-filing spouse’s credit. This can be advantageous when planning for larger credit purchases as a couple in the future.
Will Beneficiary
In cases where your spouse is listed as a beneficiary in a relative’s will, and it’s likely that the relative will pass away within the next five years, filing for Chapter 13 bankruptcy without your spouse can be a strategic decision to protect their inheritance.
What is Chapter 13 Bankruptcy Anyway?
Chapter 13 bankruptcy, also known as a wage earner’s plan, offers debtors a structured way to repay their debts over a period of 3-5 years. This plan is based on the debtor’s future income and typically covers all or a portion of the outstanding debts. Chapter 13 bankruptcy can be used to:
- Prevent foreclosure on a home
- Catch up on missed car or mortgage payments
- Repay taxes
- Stop the accrual of interest on tax debt
- Protect non-exempt property
- And more
The amount to be repaid is determined by the debtor’s disposable income, as calculated through the Maryland Means Test. Additionally, the total amount paid to creditors under the Chapter 13 plan must be at least as much as they would have received if the debtor had filed for Chapter 7 bankruptcy.
Chapter 13 bankruptcy is often chosen when a debtor wants to keep secured assets with more equity than can be protected using Maryland bankruptcy exemptions. It is a reorganization plan, whereas Chapter 7 bankruptcy involves liquidation.
How to File for Chapter 13 Bankruptcy Without Your Spouse?
When one spouse files for Chapter 13 bankruptcy, only their name and social security number appear on the bankruptcy petition. The other spouse’s information is not included. However, the non-filing spouse’s income is considered in the means test calculation to determine the length of the bankruptcy (3 or 5 years). The non-filing spouse’s income also affects disposable income, which, in turn, determines the amount paid to creditors.
In cases of separation, where the non-filing spouse does not reside with the filing spouse, the non-filing spouse’s income may not need to be used in the bankruptcy calculations.
Your Spouse’s Credit
Filing for Chapter 13 separately can preserve your spouse’s good credit if they have no joint debts and do not require financial relief from separate obligations. The bankruptcy filing will typically appear only on the filing spouse’s credit report and should not affect the non-filing spouse’s credit.
Your Spouse’s Individual Debts
When one spouse files for Chapter 13 without the other, only the debtor’s individual debts are affected. Your spouse remains responsible for their own financial obligations, which are not impacted by the Chapter 13 bankruptcy.
Joint Debts
Filing for Chapter 13 bankruptcy triggers the automatic stay, halting all collection activities against the filing spouse. Importantly, unlike Chapter 7 bankruptcy, the automatic stay also protects the non-filing spouse from creditor actions related to joint debts. However, if the joint debt is not included in the payment plan, creditors can request the court to lift the co-debtor stay to collect from the non-filing spouse.
Tax Refunds
In Chapter 13 bankruptcy, tax refunds are typically allocated to the Chapter 13 Trustee as part of the disposable income used in the payment plan. However, when one spouse files for Chapter 13 without the other, joint tax refunds may be treated differently. In non-community property states like Maryland, the non-filing spouse’s share of the tax refund usually does not have to be turned over to the Trustee.
Should You File for Chapter 13 Bankruptcy Separately or Together?
So, the real question isn’t just whether one spouse can file for Chapter 13 bankruptcy without the other, but whether it is advisable to do so. The decision to file individually or jointly depends on various factors, including your financial situation, assets, debts, and your spouse’s eligibility and credit status.
To make an informed decision, it’s essential to consult with an experienced bankruptcy attorney. Chapter 13 bankruptcy is a complex process with many nuances, and an attorney can help you understand the best course of action for your specific circumstances.
The Law Offices of Nicholas J. Del Pizzo in Baltimore, MD, can provide the guidance you need to navigate the bankruptcy process successfully. Whether you’re seeking to eliminate debt, protect assets, or save your home, we’re here to help you achieve a fresh financial start.
The burden of overwhelming debt can be too much for anyone to handle.
That’s where we come in to help. At The Law Offices of Nicholas J. Del Pizzo, III P.A. in Baltimore, our knowledge and experience with bankruptcy law can assist you in wiping out your debts, reorganizing your finances, or saving your home. Contact us today to discuss your bankruptcy options and start your journey toward financial relief and a brighter future.