How Does Joint Bankruptcy Work? Is It The Right Strategy For Me?
Married couples struggling with debt often consider whether to pursue a joint bankruptcy. However, just because you share finances with your spouse does not mean that you need to share in bankruptcy. There’s no one-size-fits-all approach to bankruptcy, and the best strategy depends on your specific financial circumstances. Read on to learn about joint bankruptcy and how to evaluate whether it’s the best move for you. If you are considering bankruptcy in the Hudson Valley, call an experienced Poughkeepsie bankruptcy lawyer to explore your options for debt relief.
What is Joint Bankruptcy?
Joint bankruptcy is a legal process by which a married couple files for bankruptcy together, combining both spouses’ assets and debts into a single bankruptcy proceeding. Joint bankruptcy may be advantageous for married couples, but it is not mandatory. A single spouse can file for bankruptcy separately, excluding their spouse and their spouse’s separate property and liabilities. For example, it’s common for one party who enters the marriage already saddled with pre-existing debts to file for bankruptcy and isolate the debt-free spouse from the effects of bankruptcy on their credit report. If the couple chooses to file together, the bankruptcy will include and discharge all covered debts possessed by both parties, saving on the additional fees, legal costs, and other administrative costs and hurdles of filing separately.
Advantages and Disadvantages of Joint Bankruptcy
Joint bankruptcy is an option, not a requirement. There may be circumstances under which it’s advisable for only one spouse to file for bankruptcy, or for the parties to file separately.
The benefits of filing jointly include:
- Reduced costs. A married couple who files together will resolve all of their debts in a single proceeding. Separate filing means paying separate costs for filing fees, administrative fees, and legal fees. Filing together consolidates the proceedings and cuts down on the cost.
- Eliminate all dischargeable debt. If only one spouse files for bankruptcy, only their debts are included in the proceeding. The other spouse’s debts remain, which can continue to affect the parties’ shared income and property.
- Efficiency. Bankruptcy, like any legal proceeding, can be exhausting and time-consuming. Filing together cuts down on the number of court filings, appearances, and other administrative hassles. You’ll also gather all relevant financial information in one place, rather than having to conduct separate investigations, duplicate efforts, and present financial information to the court and interested parties multiple times.
- Higher exemptions. There are a number of exemptions in the bankruptcy code that can be used to protect certain pieces of property. In a Chapter 7 bankruptcy, the trustee may, for example, sell your home to pay off debts. Bankruptcy filers can rely on the homestead exemption that protects their home up to a certain amount of equity (value of the home in sale less the amount still owed on the mortgage). The homestead exemption in New York is doubled for married couples filing jointly, allowing the parties to protect their home more effectively. Other exemptions apply double to married couples as well.
There are drawbacks to filing jointly, however. Considerations that may counsel against joint filing include:
- Only one party has substantial debt. If most of the debt was incurred before the marriage, then most of the debt is separate property and need not affect the other spouse. One spouse can see the couple’s debt eliminated in large part without affecting the credit score of the other spouse.
- The non-filing spouse has a lot of non-exempt separate property. When you file for Chapter 7 bankruptcy jointly, all property owned by both spouses is at play. If only one spouse files, then the other spouse’s separate property is not at risk for liquidation. If the non-filing spouse has significant amounts of non-exempt separate property, it might be worth filing separately to protect that property.
- Protect the credit of the non-filing spouse. A bankruptcy filing will stay on your credit report for either seven or ten years, depending on whether you file Chapter 7 or Chapter 13. If only one spouse needs to file to take care of a substantial portion of the couple’s debts, it might be worth preserving the other spouse’s credit score.
If you are struggling with debt in Orange, Ulster, or Dutchess Counties or anywhere in the Hudson Valley, contact the experienced and professional New York bankruptcy legal team at the Law Office of Taran M. Provost, PLLC for a free consultation on your case at 845-733-2720.