What Happens to Joint Debts If Only One Spouse Files for Chapter 7?
Filing for bankruptcy is a major financial decision that can provide relief and a fresh start for individuals struggling with debt. However, when you’re married and only one spouse chooses to file for Chapter 7 bankruptcy, the implications for joint debts can be complex. This article breaks down what happens to joint debts when only one spouse files for Chapter 7 and offers practical tips and expert insights to help you stay on top of such a situation.
Understanding Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows individuals to eliminate most unsecured debts such as credit cards, medical bills, and personal loans. In exchange, certain non-exempt assets may be sold to repay creditors. The entire process typically takes 3 to 6 months and can provide a clean financial slate.
One critical aspect to understand is that Chapter 7 bankruptcy only discharges the legal obligation of the filing spouse. This distinction becomes crucial when dealing with joint debts, such as co-signed loans, shared credit card accounts, or a jointly held mortgage.
Joint Debt Defined
Joint debt is any debt that is legally owed by more than one person. In a marriage, common examples include joint credit cards, co-signed auto loans, shared personal loans, and joint mortgage agreements.
When both spouses sign for a debt, they are both legally responsible for its repayment. If only one spouse files for Chapter 7, the non-filing spouse remains liable for the full amount of any joint debts.
What Happens to Joint Debts in a Single-Spouse Chapter 7 Filing?
1. Debt Discharge Applies Only to the Filing Spouse
When only one spouse files for Chapter 7, their liability for joint debts is discharged. This means they are no longer legally required to repay those debts. However, the creditors can still pursue the non-filing spouse for the entire balance of the debt.
Example:
Sarah and John have a joint credit card with a $10,000 balance. Sarah files for Chapter 7, and the debt is discharged for her. However, John did not file. The credit card company can still pursue John for the full $10,000.
2. Impact on the Non-Filing Spouse
Creditors may begin or continue collection actions against the non-filing spouse, which can include collection calls, lawsuits, wage garnishment, and credit report damage. This can create serious financial stress for the non-filing spouse, especially if the household income relies on both spouses.
3. Effect on Joint Property
In states like Maryland, which follow common law property rules, assets owned jointly may be considered part of the bankruptcy estate. This can expose certain jointly owned property to liquidation, depending on how the asset is titled and the applicable exemptions.
4. Co-Debtor Stay Doesn’t Apply in Chapter 7
Unlike Chapter 13, Chapter 7 bankruptcy does not include a co-debtor stay. This means that creditors can immediately pursue the non-filing spouse for joint debts, even while the filing spouse is protected by the automatic stay.
Practical Tips for Managing Joint Debts During Bankruptcy
1. Evaluate the Benefits of a Joint Filing
In many cases, it may make more sense for both spouses to file jointly for Chapter 7. This ensures that both parties receive the discharge and prevents creditors from pursuing either spouse for joint debts. A joint filing can also save on attorney fees and court costs.
2. Review All Debts and Property Titles
Work with a bankruptcy attorney to identify all jointly held debts, clarify ownership of assets, and understand which exemptions apply. This assessment can prevent surprises during the bankruptcy process and help protect marital assets.
3. Consider Debt Reaffirmation or Settlement
If you want to keep certain jointly held assets, like a car or home, the non-filing spouse may need to reaffirm the debt or enter into a settlement agreement with the creditor. Be cautious with reaffirmations, as they reestablish legal responsibility for the debt.
4. Monitor Credit Reports
Filing for bankruptcy affects the credit of the filing spouse, but joint debts may also impact the non-filing spouse’s credit if payments are missed. Both parties should monitor their credit reports and take steps to rebuild credit over time.
5. Speak to a Bankruptcy Attorney Early
Each couple’s financial situation is unique. Consulting with a knowledgeable bankruptcy attorney can help you decide whether one or both spouses should file, understand the risks to joint property, and develop a long-term financial plan.
When a Single-Spouse Filing Might Make Sense
There are certain scenarios where it may be advantageous for only one spouse to file for Chapter 7:
- The majority of the debt is in one spouse’s name.
- The non-filing spouse has good credit and minimal debt.
- The couple wants to protect jointly owned assets using the non-filing spouse’s ownership.
In these cases, strategic planning is essential to ensure that the non-filing spouse is not left financially vulnerable.
How Sirody Bankruptcy Center Can Help
Filing for Chapter 7 is a major step, and doing it alone—even when married—requires careful analysis. At Sirody Bankruptcy Center, our experienced team can help you:
- Analyze the risks and benefits of individual vs. joint filing
- Navigate the complex parts of joint debts
- Protect your marital assets
- Achieve the best possible outcome for your financial future
With over 20 years of experience in Maryland bankruptcy law, we provide trusted legal guidance with compassion and professionalism.
Get the Right Help for Your Bankruptcy Journey
If you or your spouse is considering filing for Chapter 7 bankruptcy and you have joint debts, it’s crucial to understand your rights, responsibilities, and risks. Filing individually doesn’t eliminate the joint debt burden; it simply shifts it to the other party. If not properly planned, this can lead to unintended financial and legal consequences.
At Sirody Bankruptcy Center, we help individuals and families find relief from debt with legal solutions that are specific to their needs. Our attorneys are here to help you evaluate your situation, plan effectively, and take confident steps toward a brighter financial future. Contact us now to get the right help for your situation!