Joint Bankruptcy While Married in KY and IN
What Is Joint Bankruptcy?
When one or both spouses in a married couple have significant debts, they have the option to file jointly or separately in a bankruptcy case. A joint bankruptcy would combine their properties and debts into one bankruptcy estate. For many couples, filing jointly is the better option. However, it’s important to evaluate your situation before making a decision. Speaking with a Kentucky bankruptcy lawyer can help you and your spouse determine if joint or individual bankruptcy is right for you.
At O’Bryan Law Offices, we have decades of experience helping individuals and married couples in Kentucky and Indiana file under the current bankruptcy law. We understand that, while bankruptcy may seem like the worst option, it is often the best choice for clearing individual or joint debts. To learn more about your filing options, contact the bankruptcy lawyers at O’Bryan Law Offices. Call our office at 502-339-222 today to schedule your free consultation.
What Happens When You File Bankruptcy While Married?
According to statistics from 2010, approximately 64% of bankruptcy filers were married. Because this percentage is so significant, it is crucial to understand the impact that your bankruptcy filing may have on your spouse. It is very understandable to want to protect your spouse from the negative effects of filing bankruptcy. However, filing jointly may be a much better option than filing individually.
Whether filing bankruptcy jointly or individually, this decision is likely to impact your spouse in some way. However, it is not automatically true that your spouse is responsible for your debt. Additionally, both spouses’ debts will not be discharged if only one spouse files for bankruptcy. In the following sections, we go into more detail about when to file joint bankruptcy and how it can affect the non-filing spouse.
When Does Filing Bankruptcy With a Spouse Make Sense?
If both spouses have joint debt or both spouses have individual debt, filing joint bankruptcy can help both spouses discharge their debts. These debts can include debts incurred before or after marriage, such as credit card debts or medical bills. Therefore, if two spouses have significant joint debts or significant individual debts, filing jointly can be a sensible choice.
When Does Filing Bankruptcy Without a Spouse Make Sense?
If only one spouse has significant debts, it may make more sense to file bankruptcy separately. For example, in a community property state, a bankruptcy filer’s individual debts, plus their liability for the community property debts can be discharged. Keep in mind, however, that most states are not community property states. Kentucky and Indiana are common law states, meaning married couples will have separate property going into the marriage.
In short, filing separately makes the most sense when only the filing spouse has significant debts. This will also spare the non-filing spouse of a hit to their credit, which can help the couple more easily recover from the bankruptcy filing. If you have questions about whether joint filing is right for you, we recommend speaking with a qualified bankruptcy attorney as soon as possible.
What Are the Pros and Cons of Filing Joint Bankruptcy?
As with every bankruptcy filing, there are pros and cons to filing joint bankruptcy. Depending on your situation, it may make more sense to file jointly or separately. When deciding which choice is right for you, it’s important to consider all the pros and cons of both options. We outline these below.
Pros of Filing for Joint Bankruptcy
Joint bankruptcy is an efficient way to tackle joint debts. Rather than filing two individual bankruptcy cases, one joint filing can save a married couple both time and money. They can also save money on attorneys’ fees by having one lawyer represent both of them. Separate filings involve separate filing fees and court costs, while joint filings combine those costs into one. Also, it would likely take longer to complete two separate cases rather than one joint case.
Additionally, the bankruptcy discharge will cover debts for both spouses rather than just one. Joint filers can also double their bankruptcy exemptions in certain states. This is the case for both Kentucky and Indiana filings. For example, if a Kentucky’s homestead exemption is up to $5,000 of equity. Therefore, if a married couple files jointly, they can exempt up to $10,000 in home equity.
Cons of Filing for Joint Bankruptcy
If one spouse has incurred a larger percentage of the debt, the other spouse’s credit score may take an unnecessary hit. The spouses may also be limited as to which chapter they can file for because of their joint income.
How Is the Automatic Stay Affected if Both Spouses File?
If both spouses file bankruptcy jointly, they will both receive the protection of the automatic stay. This means that, as soon as they submit their bankruptcy petition to the bankruptcy court, their creditors must stop all collection efforts. This includes foreclosures, repossessions, wage garnishments, and more.
How Is the Automatic Stay Affected if Only One Spouse Files?
If only one spouse files bankruptcy, only the filing spouse receives the protection of the automatic stay. The non-filing spouse does not receive this protection. In separate property states, this may not have any effect on the non-filing spouse. However, in community property states, this may leave the non-filing spouse open to collection efforts. For example, a creditor may attempt to garnish wages from the non-filing spouse’s income if the filing spouse’s bankruptcy discharge doesn’t cover all of the community debts.
What to Consider When Filing Joint Bankruptcy
Before filing for bankruptcy with your spouse, it’s important to keep a few factors in mind. The factors to consider before filing for bankruptcy with your spouse include the debts you want to discharge, how much property you and your spouse have, the costs of bankruptcy, the effect on your credit, and the available bankruptcy exemptions.
First, understand the distinction between secured and unsecured debts. Secured debts are those that are tied to physical assets like cars, houses, and other items of value. Unsecured debts are those that are not tied to physical assets, like credit card debts and medical bills. In most cases, bankruptcy can help wipe out your unsecured debts. However, it may result in a loss of secured assets like your home or vehicle.
Importantly, bankruptcy cannot wipe out all types of debt. Debts such as alimony, child support, student loans, and certain tax debts cannot be discharged through bankruptcy. Speak with a bankruptcy lawyer about which of your debts are and are not dischargeable before filing.
You should also consider how much property you and your spouse own together. Each state has its own set of bankruptcy exemptions that outline what property you can keep if you file jointly or separately. Many states allow filers to double their exemptions when filing jointly, so you may want to take advantage of this in your case.
If you have property that is non-exempt, you may lose that property in Chapter 7 bankruptcy. In Chapter 13, however, you should be able to keep your property as long as you repay your creditors through a repayment plan.
Filing bankruptcy also involves certain costs, such as attorney fees, court filing fees, and fees for the mandatory bankruptcy courses. All filers must pay the filing fees and course fees unless they qualify for fee waivers. If spouses decide to file separately, they may end up paying more in filing fees and attorney fees than if they had filed jointly.
Bankruptcy can also significantly impact one’s credit. If both spouses file bankruptcy together, both their credit scores will take a hit. If one spouse files separately, however, the non-filing spouse’s credit should not be affected. This can also make it easier for the married couple to financially recover, as one spouse’s credit will not have dropped significantly.
Lastly, it’s important to consider what your bankruptcy exemption options are. Many states, including Kentucky, allow you to choose between state and federal exemptions. You cannot “mix and match” the bankruptcy exemptions. You must choose one set or the other.
Once you choose your set of bankruptcy exemptions, you may be able to double those exemptions if filing jointly with your spouse. Examine your bankruptcy exemption options carefully before deciding which set is best for your situation.
Contact the Bankruptcy Attorneys with O’Bryan Law Offices Today
If you and your spouse have significant debts, you may want to consider filing joint bankruptcy. Joint bankruptcy can save you time and money over filing separately, protect both parties with the automatic stay, and wipe out your debts. Before you decide to file, contact an experienced bankruptcy attorney. We can evaluate your situation and give you sound advice on how to proceed. Contact O’Bryan Law Offices at 502-339-0222 today to schedule your free consultation.