Do I Need to Add My Wife to My Bankruptcy?

by Beverly Bird

When people marry, they tend to commingle assets, debts and expenses. They open joint bank accounts and take out joint loans. The approach usually works quite well – unless one of you files for bankruptcy. You don't have to add your wife to your petition if she doesn't want to file for bankruptcy as well, but there may be some disadvantages to not doing so.

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Your Wife's Income

When you file for Chapter 7, the court liquidates your assets and converts them to cash to pay your creditors as much as possible. If there's not enough to pay your debts in full, they're erased or discharged. Changes to the bankruptcy code in 2005 make it harder to qualify for Chapter 7. The Bankruptcy Abuse Prevention and Consumer Protection Act requires that you pass a means test, proving you don't have enough income to pay your necessary living expenses and debts. You must include your wife's income in the means test, because her contribution to household bills leaves more of your own income to pay your debts. If you file for Chapter 13 bankruptcy, your wife's income is a factor for a similar reason. Chapter 13 involves entering into a court-monitored payment plan over three to five years that allows you to pay down your debts in manageable installments. If your wife's income contributes to your household's necessary expenses, this frees up more of your own income for your repayment plan.

Community Property States

If you live in one of the nine community property states, you and your spouse jointly owe all marital debts. It doesn't matter whose name is on the loan or account. If you assumed responsibility for it while married, the creditor can pursue either one of you for payment. Therefore, if you file for Chapter 7 protection and discharge your own responsibility for the debts, your creditors can then look to your wife for payment if you don't add her to your bankruptcy as a co-petitioner. Creditors can't reach your community property assets after bankruptcy, but they can place liens against any property your wife owns separately, such as assets acquired before you got married.

Joint Debts

The other 41 states draw a more distinct line between debts in your name alone and debts you and your wife sign for jointly. If a credit card or loan is in your sole name, your wife isn't vulnerable to collection efforts by creditors after you file for bankruptcy. However, loans and accounts that you sign for jointly are a different matter. If you file for Chapter 7 bankruptcy on your own, without including your wife as a co-petitioner, creditors can no longer try to collect from you, but your wife is still responsible for the debts. If you file for Chapter 13 bankruptcy, your wife wouldn't have any liability for joint debts if you pay them off entirely as part of your plan. However, if your plan doesn't provide for full payment to any joint creditor, the creditor can pursue your wife for payment after your liability is discharged.

Your Wife as a Creditor

If you're obligated on any debts jointly with your wife, the bankruptcy code requires that you name her as a creditor in your petition. This prevents your wife from making any claim against you for bills she had to pay on her own because you filed for bankruptcy and discharged your personal liability. If you're happily married, this might not seem necessary, but in the event of a divorce, it offers you some protection.