In cases in which both a husband and wife are involved, a question presents itself: Should one or both spouses file? The answer is that it is usually preferable for both to file. The same initial court fee can provide both spouses the advantages of a bankruptcy discharge. Debts are often jointly owed; a spouse who does not file remains liable as a co-debtor and may continue to be pursued by creditors after the case.
The decision to file jointly, if appropriate, must be made at the outset of the case; numerous courts have held that a spouse cannot be added later to an existing bankruptcy petition. If a debtor’s spouse seeks to file after the initial petition, the best option might be to file separately under the same chapter and request joint administration of the two cases.
When both spouses should not file
There are several exceptions to the general rule that both spouses should file:
One spouse does not want to participate. The most obvious is the situation in which one spouse does not wish to participate. Most of the advantages of bankruptcy can still be obtained by filing a petition on behalf of the willing spouse.
One spouse is barred from filing for bankruptcy. A second exception is the case in which one spouse is barred from filing by a prior bankruptcy or, if the case proposed is a Chapter 7 case, there is some likely objection to discharge. Similarly, some debt of the nonfiling spouse–for example, a very large priority debt that must be paid or a debt above the debt limitations–might make a viable Chapter 13 case impossible.
Property would be protected if only one spouse files. Probably the most important exception occurs when filing for only one spouse would protect property. This sometimes means not filing for a spouse with nonexempt property. However, creditors can usually continue to proceed against that property. The more likely reason is the presence of substantial amounts of entireties property in excess of the applicable exemption levels, which under state law are not reachable by a creditor of only one spouse. In such cases, if only one spouse files and the state, rather than federal, exemptions are chosen, all of that spouse’s interest in such property may be exemptible, at least as to creditors of only the filing spouse. After the bankruptcy, creditors will be unable to reach any of the debtor’s property because their claims will have been discharged. The advantages of one spouse filing in such situations, then, are obvious.
Debtors must also consider the effects of the bankruptcy on community debts and property in community property states. Although the considerations involved vary from one state to the next, most community property generally becomes a part of the estate, and most community claims are usually discharged even if only one spouse files. Thus, most or all of a spouse’s property and debts may be affected by the bankruptcy regardless of whether he or she joins in the petition. This factor may bring either advantages (discharge) or disadvantages (loss of property) to a nonfiling spouse and should be considered carefully.