Can a Married Couple Claim Individual Bankruptcy?

by Tom Streissguth
A marriage partner may file bankruptcy alone or jointly with a spouse.

A marriage partner may file bankruptcy alone or jointly with a spouse.

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If you are married but have unmanageable debts, you can file for bankruptcy protection as a couple or as an individual. To qualify for a Chapter 7 bankruptcy, you must list income and assets of the entire household; if you don't meet the legal guidelines, you may be able to file for a Chapter 13 repayment plan. In both cases, property included in the bankruptcy may be separate from property of the non-bankrupt spouse. One crucial consideration in a separate filing is whether you live in a state that recognizes community property or common-law property. You may want the help of an attorney or legal document service, given the complexity of not just the bankruptcy filing, but also the difficulty of classifying property.

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Community Property States

In a community property state, all property that you acquired during the marriage is considered jointly owned, or marital property. Any property you owned individually before the marriage, or property that was a gift or inheritance during the marriage, is separately owned. You must include all property in which you have an interest -- including marital property -- in the bankruptcy estate. In a Chapter 7 case, the estate is subject to seizure and liquidation by the bankruptcy trustee. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In Alaska, a couple may establish a community-property marriage by signing an agreement.

Common-Law Property States

In a common-law property state, property that you own individually remains your sole property, even if you acquired the property while married. Your spouse's individual property, as in a community property state, remains outside of the bankruptcy estate. Property owned jointly is included in the estate. In community and common-law property states, federal and state laws govern which property is exempt, meaning it can't be seized. In some states, you must choose the state exemptions, while in others you may choose either state or federal.

Non-Exempt Property

The court has the authority to determine what property is separate or marital -- in most marriages, the legal owner of property, such as cash in a bank account, is often difficult to determine. The Chapter 7 bankruptcy trustee has the authority to seize and liquidate property that is not exempt under the law. However, he must reimburse your spouse for half of the value if he takes this step. Your spouse can argue that the loss of the property would be a serious financial detriment or create an unjustified financial hardship, and request a court hearing if the matter can't be settled.

Discharge of Debts

An individual bankruptcy will end with a discharge, or cancellation, of all debts. This does not include certain protected creditors, such as the IRS, state taxes, federally guaranteed student loans and child support agencies. If you are married, any debts held jointly are discharged only for the bankruptcy petitioner, not for the spouse; the spouse's obligation to repay his share of the debt survives, even if your portion of the debt is discharged through the bankruptcy proceeding.