A common question that clients have is whether they have to file bankruptcy with their spouse. This issue may come up for a variety of reasons. The most common reasons for this question are that the spouses are separated, or one spouse does not want to file Bankruptcy.
Spouses do not have to file Bankruptcy together. They can file separately.
WHAT ABOUT OUR STUFF
All of your assets must be included and listed in your Bankruptcy. That includes assets that you may consider to be the non-filing spouses'.
With that in mind, one thing you will need to be aware of is whether or not the non-filing spouse will be willing to waive their rights to use the Bankruptcy exemptions if you file separately.
Basically this waiver means that the non-filing spouse will not use the same exemptions as the filing spouse if they file Bankruptcy during the filing spouses' open Bankruptcy. They can use them after the filing spouses’ case is closed, just not during.
To help by giving a visual of what this means, you can think of exemptions as buckets. There are the civil code bucket of exemptions (703, and 704 which are most commonly used in Bankruptcy) and there is the federal code bucket of exemptions. The Bankruptcy Code prevents debtors from double dipping into these exemptions.
For example, if you have assets that need to be protected using the 703 civil code bucket of exemptions, we will need the non-filing spouse to waive their right to use those exemptions while your Bankruptcy case is open and active. They can use them once your case is closed, they just cannot double dip into those exemptions while your case is active. If they file they would have to use another set of exemptions.
The big factor for the spousal waiver is regarding the 703 civil code of exemptions. The 703 civil code exemptions offer the use of what is often called the "wild card" exemption. The wild card exemption can protect $26,925 worth of equity in your assets, which could be very critical to your exemption planning.
Where this can be important is if there are assets that may need to be protected using the 703 civil code set of exemptions that cannot be protected using any other set of exemptions.
If you are in a situation where you have assets that need to be protected using the 703 civil code set of exemptions, then you will have to determine whether you are able to obtain a written waiver from the non-filing spouse.
If you cannot obtain that waiver, then assets that cannot be protected may be at risk of being taken by a trustee in a Chapter 7 Bankruptcy. This may mean that a better option to protect your assets is to file a Chapter 13 Bankruptcy.
There are many different things to consider when filing Bankruptcy, you should consult with an attorney to discuss your case.
WHAT ABOUT OUR INCOME
If you are living separate and apart, then generally you do not have to include the non-filing separated spouse’s income. If they are supporting you in any way, then it is possible their income needs to be included.
If on the other hand you are still living together, but your spouse does not want to file, then you do have to include all of your household income.
You should consult with a Bankruptcy attorney to determine the best course of action in your case.
Contact us today to discuss your case!