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Tuesday, November 8, 2011

Individual or joint bankruptcy filing?

I have a lot of people who come in for consults with me and they are wondering if they have to file together or can one or the other file an individual bankruptcy case. If a joint case is filed there are actually two bankruptcy estates. Under 11 USC 302(a) an individual and his or her spouse may file a joint petition under Chapter 7. From a technical standpoint there are two separate bankruptcy cases/estates created. However, in almost every case the estates are consolidated under Bankruptcy Rule 1015(b) and administered as one case. The debtors will have their creditor's meeting scheduled for the same time and the same trustee will be appointed to administer both estates.

It usually makes sense to file a joint case when there are joint obligations on a significant portion of the debt. I've had some people fairly surprised to learn that they can't get rid of debt for their spouse if they file a bankruptcy on a creditor. Doesn't work that way...if the spouse has signed on the dotted line..then they are liable too and one person who is liable on an account is not going to get rid of the debt for the other because they've filed a bankruptcy case. On the other hand, if one spouse owes the lion's share of the debt and the other spouse is fairly debt free (meaning they haven't obligated themselves to pay on the debt)....then filing an individual case makes all kinds of sense. The court will always, as discussed in other posts, take the non-filing spouse's income into consideration when determining if the person that does file the bankruptcy case is eligible to file from an income standpoint. That's because the debtor and the non-filing spouse are seen by the court as an "economic unit". I usually get a "that's not fair", especially from people who may have just gotten married recently and where one has brought a lot of debt as baggage into the relationship. Whats "fair" hasn't got much to do with it. However, if the non-filing spouse has debt service of his or her own though that can be and should be factored in to the calculation so not all the income of the non-debtor always counts in an "ability to pay" analysis.

Only married persons can file a joint case. So boyfriend/girlfriend...even though it may feel like your married and you've got kids in common, have joint bank accounts or hold title to real estate together..plus any other trappings of a serious and permanent relationship without that marriage certificate you'd be looking at two separate bankruptcy filings as individuals...two filing fees, two attorney fees, two hearings and two separate discharge orders.

If you've got questions about chapter 7 or chapter 13 bankruptcy for personal or small business we've got the answers.

Kingsbury Law Office

www.kingsburylawoffice.com

2 comments:

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  2. Good post! Thanks for sharing this information I appreciate it. God bless!

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