What Happens When One Spouse Files Bankruptcy?

Financial hardships, such as filing for bankruptcy, can imperil even the most loving and compassionate marriages. If one's spouse files for bankruptcy, the other may or may not wish to file simultaneously for bankruptcy. A joint filing make sense if the non-insolvent spouse has few resources or is otherwise utterly financially mixed up with his or her partner. Filing jointly avoids harrowing situations, in which miffed creditors attempt to reclaim one spouse's debts by going after the other spouse's assets. Moreover, filing jointly for bankruptcy affords couples a more simple financial transition.

On the other hand, if the indebted spouse has most of his or her debt in his or her name alone, joint filing may not be so wise. Similarly, if the non-indebted spouse has numerous protected assets or inheritances on the horizon, joint filing may not be recommended. In short, it's important to work with your bankruptcy counselor and financial advisor to work out your best course for action.

In some cases, one spouse may be able to lend the other enough money to pay down overdue credit card balances, rebuild trust with lenders, and lay the groundwork for improved credit.

In cases in which a couple is separating or getting divorced, bankruptcy proceedings can grow more complicated, particularly if no prewritten (prenuptial) agreements between the partners exist. There are precedents which bankruptcy trustees use to adjudicate spousal disputes over bankruptcy filing, and the law goes out of its way to protect alimony, palimony, and childcare judgments.

Thus, if one spouse declares bankruptcy to get out of family related debts, the law prohibits the discharge of aforementioned obligations (palimony, etc). The timing of a spousal bankruptcy itself can create both opportunities and problems for the couple. A smartly engineered bankruptcy offers both parties the chance to get out from under snowballing credit card debt and medical bills due to illness.

Moreover, by taking advantage of the mandated financial management courses that bankruptcy filers must go through, married couples can develop the tools they need to forge a sound post bankruptcy life together.