One of the most common questions we hear from potential clients is “Does my spouse have to file for bankruptcy with me?” This question is especially relevant for higher-income residents in Dallas, Texas, who often manage complex financial portfolios and obligations. There is no rule requiring that a spouse also file for bankruptcy, but in certain situations, it may be benficial to do so. Let me explain the nuances so you can ease your mind and make a clear decision.
Individual vs. joint bankruptcy filings
First, let me explain the difference between individual and joint bankruptcy filings. Bankruptcy can be filed either individually or jointly with your spouse. The choice between these two filing types depends heavily on your specific financial circumstances, including the nature of your debts, assets, and income.
Individual bankruptcy filing: If you choose to file individually, the only debts addressed by the bankruptcy proceeding will be your own. Your spouse’s separate debts, credit score, and financial standing will typically not be directly affected by your bankruptcy filing. This can be advantageous if your spouse has good credit or limited debt and you wish to protect their financial standing and creditworthiness.
Joint bankruptcy filing: Joint bankruptcy, on the other hand, involves both spouses filing together. This approach can make sense if both parties have significant shared debt, such as joint credit card accounts, mortgages, or personal loans. Filing jointly allows the couple to address their debts comprehensively in a single proceeding, often saving both time and money in legal and administrative fees.
Impact on community property in Texas
Texas is a community property state, meaning that most property acquired during the marriage is considered jointly owned by both spouses. Even if one spouse files bankruptcy for individual bankruptcy, certain community assets may be affected. It is crucial to understand how community property rules impact your assets during bankruptcy.
In a Chapter 7 bankruptcy, for instance, the filing spouse’s separate property and their share of community property become part of the bankruptcy estate. The trustee may sell non-exempt assets to repay creditors. However, Texas bankruptcy exemptions are generous and typically allow individuals to protect significant amounts of equity in their homes, retirement accounts, personal vehicles, and other valuable assets.
Debt responsibility and bankruptcy
It is also important to understand how debt responsibility works within a marriage. Generally, debts incurred individually by one spouse remain the responsibility of that spouse alone, unless both spouses explicitly assume the debt. However, for debts incurred jointly, such as a shared credit card or mortgage, both spouses remain legally responsible. Even if one spouse files for individual bankruptcy, the non-filing spouse can remain fully liable for joint debts.
In other words, if you file individually, your personal liability for joint debts will be discharged through bankruptcy, but creditors could still pursue your spouse for repayment. In such situations, joint filing might offer a more practical solution.
Effect on credit scores and future borrowing
Many people wonder how filing bankruptcy will affect their spouse’s credit score. An individual filing typically will not impact the credit rating of a non-filing spouse. Each spouse maintains separate credit reports and scores, even though they may share joint accounts. Nevertheless, if joint debts remain unpaid after one spouse’s bankruptcy, missed payments can negatively affect the non-filing spouse’s credit rating.
Chapter 7 vs. Chapter 13 bankruptcy
It is also important to understand the differences between the two types of personal bankruptcy cases. Chapter 7, often known as liquidation bankruptcy, quickly discharges eligible debts. Chapter 13 involves a repayment plan lasting three to five years.
For higher-income individuals in Dallas, Chapter 13 might be preferable due to income restrictions in Chapter 7 filings. Chapter 13 can also be beneficial if your non-filing spouse earns significant income or if you need to protect specific assets.
We can help you make the right decision
Deciding whether to file individually or jointly requires careful evaluation of your specific financial situation, debt structure, and future financial goals. Every bankruptcy case is unique, and making the correct choice is critical to your financial recovery and future stability.
Ultimately, the best way to determine whether or not your spouse should file bankruptcy with you is by consulting an experienced bankruptcy attorney. At Rubin & Associates, we understand the financial pressures facing high-income individuals in Dallas, Texas. Our experienced legal team is here to provide personalized advice tailored specifically to your situation.
During your free consultation, we will analyze your financial circumstances comprehensively, then clearly outline the most beneficial course of action for you and your spouse. We will ensure you fully understand all of your options, the potential outcomes, and the best path toward financial stability.
Struggling with debt is stressful enough – do not try to navigate this challenging time alone. Contact Rubin & Associates today to schedule your free consultation, and let us guide you toward the best possible solution for your financial future.