If I File Bankruptcy Does My Spouse Have To File Also?
Nowhere in the Bankruptcy Code does it state that if one spouse files a bankruptcy, that the other must do so also. In many instances, it may be to the couple’s benefit to file together if both are struggling with debt or there is joint debt, but it is not mandatory.
So, how is your spouse’s property and debt effected if you are the only one filing the bankruptcy alone? The answer depends on what kind of state you live in: equitable distribution or community property.
Community Property When Filing Bankruptcy In Arizona
Arizona is a community property state. This means that the state has decided that all property and debts accrued during the marriage will be owned equally by the couple. A good example is, if your spouse purchases a home, using only their income to qualify and only their name is listed on the deed, you would still have a joint interest in the property in a community property state. This also means that if your spouse opens up a credit card in their name and maxes it out, you are equally responsible for the debt and the creditor can pursue collections against you, in the same fashion that they would have the right collect from your spouse who opened the account.
When thinking about filing bankruptcy, living in a community property state such as Arizona, can be both a positive or negative factor depending on your case. The biggest positive is that because you and your spouse are both responsible for community property debts, you may be eligible for a discharge on community property debt, even though it is only your spouse that filed the bankruptcy. This is important because once the Bankruptcy Court order is entered stopping creditors from collecting on the community property debt, the order will also cover the creditors attempting to collect from you. When your spouse receives the discharge of their debt, which relieves responsibility for the debt in the future, it would equally apply to you and your community property debt. This is not the case in an equitable distribution state.
There are also negatives to filing bankruptcy in a community property state such as Arizona that may result in both spouses needing to consider before either of them files a bankruptcy. The most important thing to think about is the “bankruptcy estate.” The bankruptcy estate is made up of all the property, both real estate and personal property, that the filer has or is entitled to one the day their bankruptcy case is filed. In a community property state all of the “property” in the filer’s bankruptcy estate would also include all of the property that may be titled only in the non-filing spouse’s name. The effect of this is that, though the debt may not have been incurred by you and you are not the one filing bankruptcy, the bankruptcy trustee can still use your assets to satisfy your spouse’s debts.
Due to the complicated nature of assets and debts in a community property state, such as Arizona, it is very important to seek legal advice from an experienced Arizona bankruptcy attorney. They can help to ensure that all of your assets are protected and if it is more beneficial to file a bankruptcy individually or jointly. Call us today for a free bankruptcy consultation.