Many people filing for bankruptcy are concerned that their chapter 7 or chapter 13 bankruptcy filing will have an impact on their non-filing spouse. Therefore, if you are in this situation, then you are not alone. This blog will explore some of the impacts that a bankruptcy can have on your non-filing spouse and to what extent your non-filing spouse will need to participate in the bankruptcy proceeding.
Your Spouse Will Need to Provide His or Her Income Information
In a bankruptcy petition, schedules I and J are for the debtor(s) household income information. If you are filing a bankruptcy proceeding individually and are married, then your non-filing spouse will need to provide their income information to be listed within your bankruptcy schedules. If your non-filing spouse makes significant income or if you have significant household disposable income, then it will affect the debtor’s bankruptcy case. One way that it can affect the debtor’s bankruptcy case is by causing a debtor to be ineligible to file for a chapter 7 bankruptcy. In a chapter 13 bankruptcy, you will need to pay your household disposable income into your chapter 13 plan. Your non-filing spouse can continue to pay his or her regular expenses including credit card payments for credit cards in their name for the household disposable income calculus. However, those expenses must be reasonable, or they are likely to trigger an objection from the chapter 13 trustee. It is important to disclose a non-filing spouse’s income and expenses to your attorney, so they can give targeted advice as to how it can affect the bankruptcy case.
Transfers to a Non-Filing Spouse
Something else to be mindful of is if you have made any transfers to a non-filing spouse prior to filing for bankruptcy. These transfers will be closely scrutinized in the bankruptcy proceeding and will have varying impacts depending on their proximity to the bankruptcy filing and the circumstances surrounding the transfers. At a baseline level, if you transfer property to a non-filing spouse for less than the reasonable value of that property in close proximity to the bankruptcy filing, it will likely cause issues in the bankruptcy case. This scenario in a chapter 7 bankruptcy will likely cause the chapter 7 trustee to seek to void the transfer through an adversary proceeding through the Court. The scenario described above will have a different impact in a chapter 13 bankruptcy case in that you will need to pay out the equity interest transferred over the course of your plan to the extent that the equity exceeds your allowed exemptions.[1] It is important to disclose any transfers you have made to your non-filing spouse to your bankruptcy attorney, so your attorney can provide you with targeted advice as to the impact it may have in your bankruptcy proceeding.
Effect on Your Non-Filing Spouse's Credit and/or Your Joint Obligations
Your individual bankruptcy proceeding will only discharge your individual debt. People who are jointly liable on debts with you will not have their obligations on that debt discharged in your bankruptcy proceeding. For example, if you have a joint credit card obligation with your spouse, then your non-filing spouse will remain liable on that credit card obligation even if your debt is discharged through a bankruptcy proceeding. Additionally, your bankruptcy filing can cause the contract to go into default, which may affect the non-filing spouse’s credit. When you consult with an attorney, it is essential that you discuss whether your debts are joint debts with your non-filing spouse (or any other individual). One way that can aid in verifying whether an account is a joint obligation with your non-filing spouse is to pull a credit report for the non-filing spouse.
If you are considering filing for bankruptcy, it is important to contact an experienced New Jersey bankruptcy attorney to guide you through your options and present you with the potential pitfalls. For questions regarding a potential bankruptcy, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation. This blog does not present a complete list of issues that may arise for a non-filing spouse. Therefore, prior to meeting with a bankruptcy attorney to consider a potential bankruptcy filing, you should have a solid grasp of your non-filing spouse’s financial affairs to allow an attorney to evaluate your situation appropriately.
[1] Further discussion of the bankruptcy exemptions can be found on the following link: https://blog.scura.com/types-of-new-jersey-bankruptcy-exemptions
