Until debt do us part? Understanding debt obligations when one spouse files for bankruptcy
On your wedding day, you and your spouse promised that two individuals would become one in the bond of matrimony. Although you have remained unified as a couple, your spouse may now be seeking to break the bond of repayment to a creditor. Should your spouse file for bankruptcy, which assets are considered “fair game” to trustees?
If you are not declaring bankruptcy, there are facts you should know to help you maintain your credit score and retain your possessions.
Equitable division state
When considering the division of a couple’s assets, the courts first focus on the state of residence. In the United States, states either recognize community property or equitable distribution of assets. Community property procedure recognizes that ownership of marital property is equal even if only one spouse’s name appears on the property title. Georgia uses the guidelines of equitable division to determine ownership. If only one spouse were to file for bankruptcy, the assets under her name would be impacted.
How assets are impacted
In states that follow the rule of equitable distribution of assets, bankruptcy trustees could not touch the property under the name of the spouse not filing for bankruptcy. If both spouses had their names on a home or car title, a trustee would have to try to separate the property to reflect the portion owned by the spouse declaring bankruptcy. Should the situation arise in which the property cannot be separated, the trustee would need to show that selling the property has more financial benefits than drawbacks for the property owners.
Future financial status
Typically, the financial status of the spouse not filing for bankruptcy will not be impacted. If credit cards accounts did not have a joint status, the only spouse responsible for the credit card debt is the one whose name is on the account.
Individuals who file for bankruptcy will find that there are different benefits and drawbacks to protecting their spouse’s assets under Chapter 7 or Chapter 13. It is recommended that those considering discharging their debts through bankruptcy contact a knowledgeable attorney to ensure that their spouse’s best interests are protected.