The Effect of Filing Spouse Bankruptcy

14-Sep-2010 Entering into a marriage is one of the biggest decisions someone can make in their life. Most people view a marriage as a lifelong partnership. However, saying i-do to your spouse does not necessarily mean you're saying i-do to their debt. If your spouse has mounting debt that is getting out of control it is entirely possible that you have absolutely no responsibility to pay that debt back on behalf of your spouse.

Ultimately the agreement of the loan remains between the person who has borrowed the money and the party who is loaning the money or the creditor. It excludes anyone that was not party of the original transaction. Thus if you did not put your name on your spouses original loan then you are not responsible for paying it back. However if your name was on the original loan for any reason that would make you responsible for the debt in the event that your spouse is unable to pay.

When you and your spouse enter into a debt together it becomes either a joint or solidary obligation. Your obligation in a joint obligation is to pay back only your portion of the debt. You would not be required to pay back the whole debt. However if the agreement with your creditor is a solidary obligation then it would be up to the creditor if you are responsible for the full amount of the debt  or not. The point of a solidary agreement is that if one co-debtor cannot pay than the other co-debtor would be responsible for the remaining amount.

Not all married couples would be allowed to file for joint bankruptcy. Marriage is the only factor that would ever allow two people to file bankruptcy together. In filing chapter 13 or chapter 7 bankruptcy there would be advantages and disadvantages to the couple.

In one example if a husband was to file for bankruptcy alone and he filed chapter 7 bankruptcy then he would receive discharge from his debt however the creditors would still be able to call on the wife for payment of the remaining debt. If the couple were to file jointly they would both be discharged from their debts.

Another example would be the results of filing chapter 13 bankruptcy with unsecured debts. With chapter 13 when a co-debtor files for bankruptcy alone they could qualify for "automatic stay" and thus their spouse would have "co-debtor stay" which would prevent creditors from pursuing the spouse that did not file for bankruptcy. This happens because unsecured creditors would be entitled to being paid back 100% by the spouse who filed bankruptcy. However if they were unable to pay the full amount the creditors would likely attempt to collect the remaining debt from the non-filing spouse.

There is no question that filing spouse bankruptcy is more complicated than filing for bankruptcy as an individual. If spouse bankruptcy is a consideration you want to speak with an attorney who can clearly outline the benefits and drawbacks of joint or individual bankruptcy as well as chapter 13 vs chapter 7 bankruptcy.

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The content found on the Chang & Carlin site is not legal advice and is purely for informational purposes. The information contained herein is not a substitute for the advice of an attorney and does not create an attorney-client relationship. If you are interested in obtaining information about chapter 7 bankruptcy, chapter 13 bankruptcy, foreclosure services, real estate legal services, you are encouraged to call our law firm at 866-790-8601 or Request a Free Legal Evaluation. Chang and Carlin serves clients in Chicago, Schaumburg, Joliet, Warrenville, Waukegan, Illinois.