your options for getting out from under debt

Chapter 13 Bankruptcy: What About Your Spouse?

If you're interested in Chapter 13 bankruptcy due to your own personal financial issues, it may be possible to file without your spouse. However, filing in this way could also lead to complications. It depends on how your debt is structured and how you want it removed. Here are three things to consider.

Your Spouse's Income

Don't file for Chapter 13 bankruptcy alone just because you think it'll lower your income below the required threshold. Your spouse's income is still going to count towards your household income, which means even if you're filing for Chapter 13 bankruptcy alone, their income is still factored in for repayment purposes.

Of course, you may also reduce the amount of income they appear to have with the debts that they owe, even though those debts may not be included in the bankruptcy.

Your Spouse's Debt

If your spouse has significant debt, it's often better to declare bankruptcy together and start with a fresh slate. Keep in mind that if you have mutual debts and you declare bankruptcy, those debts aren't just going to go away. In many situations, they could become solely your spouse's issue, as they are considered to be a debtor and co-signer on mutual debts. 

On the other hand, if your spouse has very little debt and you have no debts in common, there may be no reason to file together. This could be common if your debts preexist your marital relationship.

Your Spouse's Credit

It's common for one spouse to decline to declare bankruptcy because they have excellent credit. When one spouse has solid credit and a good financial situation, it's often not in their best interest to declare bankruptcy. Having one partner with good credit may make it easier for a couple to recover from their bankruptcy later on.

If it's inevitable that both of you will declare bankruptcy, however, it may be best to get it over with at once; you can both begin rebuilding your credit at the same time.

In short, if your spouse would be adversely impacted by a bankruptcy, there's usually no reason to add them. Adding a spouse to a bankruptcy is generally only important if they have debts of their own to resolve. However, it's important not to assume that the bankruptcy won't impact them at all, even if they don't decide to declare it. Co-signed loans and marital loans could still be an issue moving forward.