How Bankruptcy Affects Your Spouse
You’re married and debt is overwhelming you. You’ve considered all of your options and decided that bankruptcy is the best route to eliminate the debt and get a fresh start in life, but you’re unsure if you should file jointly or as an individual.
To answer that question, a lot will depend on the nature of the debt facing you. Is it in one name only, or is it jointly held? A lot will also depend on the assets the two of you own. Does one spouse have personal property that needs to be protected from bankruptcy outside of a joint filing?
If you are facing unmanageable debt in or around Portland, Gresham, or Beaverton, Oregon, contact Lyndon Ruhnke, P.C. to discuss your bankruptcy options. Attorney Lyndon Ruhnke has nearly two decades of experience in helping others with consumer bankruptcy and he is ready to lead you in the right direction.
An Overview of Bankruptcy Law
The first thing to know about consumer bankruptcy is that it presents two main options — Chapter 13 and Chapter 7. Chapter 13 is known as the “wage earner’s plan.” Chapter 7 is the liquidation option.
To qualify for Chapter 13, you must have an income that not only pays your living expenses but leaves some money left over, which is called disposable income. You can use this disposable income to set up a repayment plan for your debt that runs for three or five years. Meanwhile, you get to retain all your assets.
To qualify for Chapter 7, you must have no income or an income that falls below the median state income for a household of your size. The bankruptcy trustee assigned to your case will then sell off your nonexempt assets to pay your creditors.
Oregon law allows for the protection of many assets as exemptions, including your home and car, but these exemptions have equity cap limits.
A married couple, for instance, can retain $50,000 of equity in their home, and $3,000 equity in one vehicle. Say you have a $200,000 home loan that you’re paying, but you’ve accumulated $75,000 equity in the property. The trustee can then sell your home to pay creditors, and you get to retain $50,000 of the sale. Otherwise, you need to come up with the $25,000 difference.
Therefore, even before answering the question of filing jointly or individually can be answered, you need to consider which bankruptcy chapter you intend to use — or that you qualify to use.
Filing for Bankruptcy Jointly
Filing bankruptcy jointly makes sense if both of you are signees to unsecured debt obligations like credit cards or personal loans. If one spouse files and the other doesn’t, the non-filing spouse is still going to be responsible for paying any joint debt obligations.
In addition, whether you file jointly or individually, the bankruptcy court is still going to consider your joint income when administering the means test for Chapter 7 or when determining disposable income for Chapter 13.
Practically speaking, a joint filing is less costly and more efficient in administrative matters. A joint filing costs the same in court fees as an individual filing and requires the same documentation, which amounts to some 50-60 pages of detailed information. Filing individually means doubling the paperwork.
Filing for Bankruptcy Individually
Some states allow exemptions to be doubled if the filers are married, but Oregon does not. Filing individually may make sense if one partner has separate assets that need protecting, such as tools of the trade. Each filing spouse can then protect his or her tools of the trade and other personal property.
Filing individually also makes sense if most of the unsecured debt is in one partner’s name. Say one spouse has $25,000 in credit card obligations and is falling behind in payments, and the other spouse has $4,000 in debt and is current on payments. It might make sense for the more indebted partner to file individually.
There are also filing limits with bankruptcy. If one spouse filed for Chapter 7 five years ago, that person cannot file for another Chapter 7, which requires an eight-year window between filings. Chapter 13, however, would be available, which has a shorter gap requirement of four years. If you’re caught in a time limitation on filing by one spouse, then the other may have to opt for Chapter 7. The non-filing spouse, however, would then be on the hook for any joint debt.
Seek Experienced Counsel
from Lyndon Ruhnke, P.C.
Bankruptcy is not a pleasant option to have to consider, but it is sometimes the best and only route to a fresh financial start. When you file, the court’s order of an “automatic stay” will stop all debt collection phone calls, and for the time being, put a hold on any repossession or foreclosure proceedings. That alone can bring peace of mind.
If you’re facing uncontrollable debt obligations and need help in figuring out the best path forward — whether to file for Chapter 7 or 13 or to file jointly or individually — contact attorney Lyndon Ruhnke, who has been advising others like you for the past 20 years.
If you’re in Portland, Beaverton, or Gresham, Oregon, reach out today to Lyndon Ruhnke, P.C., and set up a consultation to get you on track for the fresh start you deserve.