Does My Spouse Have to File Bankruptcy Too? – August 2016 Interview

Katherine:

Attorney Pete Moak is here with us again today to talk with us about bankruptcy. Today’s subject is going to be about a married couple filing bankruptcy, but the question is: Does both spouses have to file bankruptcy in order for this to be able to go through. So attorney Pete, thank you so much for coming back to This Needs To Be Said. I’m interested to find out what is the answer to this question. How are you today?

Pete Moak:

I’m doing wonderful. Thank you. I hope everybody is doing well. This is a very important question that is often asked by people that I talk to who have concerns that they need to file bankruptcy but their concern is that their spouse doesn’t want to file or can’t file for one reason or another. When that happens, it is possible for one spouse to file bankruptcy without the other. The answer is no, both husband and wife do not have to file bankruptcy together. It is possible for one spouse to file bankruptcy without the other spouse being involved.

Both incomes have to be included in what we report to the bankruptcy court as to the household income. We look at the household income, we look at the household expenses and that income and expenses, of course, is combined. Those are the things that people need to understand, that it is possible for one spouse to file without the other. There are some issues that come up especially, as we are, in a community property state. There are debts that were incurred by one spouse which are obligations of the community. In other words, either spouse can create a debt that binds or obligates the community estate, the marriage, to pay the debt.

When it comes to credit card debts, for example, sometimes we have one spouse who made the application to get a credit card and did not include the income of the other spouse in the application to get the credit card and the other spouse never signed the application. If only one spouse filed the application to get the credit card and only one spouse’s income was used to apply for the credit card, it is almost certain that the other spouse is not going to be subject to having that particular credit card company going after them for the debt. In other words, the spouse who was not included on the application does not have to be concerned that their income is going to be garnished or that they’re going to be subject to having a negative on their credit report because of the spouse’s credit card.

What happens sometimes though is that the husband and wife have assets that are together, maybe they own a home, and only one spouse files bankruptcy and the other spouse did not file and the other spouse has debts that they are obligated to pay. If they don’t continue to pay those debts, that creditor can file a lawsuit and get a judgement against the spouse that did not file bankruptcy and a lien may be recorded and the recording of that lien is impairing the homestead, the house that they own together as husband and wife. This creates an issue now later, let’s say that one of the spouses has completed their bankruptcy and now they want to go ahead and refinance their home loan. There’s this judgement that’s been recorded and it was validly recorded against the spouse who didn’t file bankruptcy because that spouse doesn’t have protection from the creditors filing because they owed that debt and they didn’t file bankruptcy. Now we have an issue of whether or not we can do anything to eliminate that lien as to the non-filing spouse.

Often times when I’m evaluating whether or not I can tell the client or the prospect whether or not it would be a good idea for one spouse to file without the other, I’m interested in knowing, does the spouse that’s not filing bankruptcy own any assets that are not community property? What that means is that let’s say two people get married but before they got married one spouse owned real estate that he acquired before they got married. That’s sole and separate property. The creditor has the opportunity to go after that asset in the prosecution of the spouse that did not file bankruptcy.

Sometimes people inherit things while they’re married. A husband and wife got married and then later the wife may have inherited property from someone who left her property when they passed away. That’s going to be the wife’s sole and separate property. It’s important to identify whether there are any assets that are sole and separate property that creditors would be able to pursue and collect from. That’s another important question.

In the process of doing a bankruptcy for one spouse and the other spouse doesn’t file, then of course the spouse who does not file will not have the bankruptcy recorded on their credit report. However, often times if they are trying to obtain new credit after their bankruptcy, the spouse who did file bankruptcy will have it noted on their credit report that they did file bankruptcy. Often times the evaluation is going to result in the conclusion that in most cases it’s better if both spouses file together and that way they can protect all of their debts from either one of them and it’s all clean.

Let’s say that somebody had a lot of debt before they got married and they got married and now that person brought all that old debt now into the new marriage. Then it would be a good idea for that spouse who had the debt prior to them getting married to file bankruptcy and that’s certainly a legitimate reason for them to file bankruptcy alone because they could legitimately say “Well, you know, all of this debt was incurred by me before I got married and I did not want to burden my wife and our marriage going forward with all the debts that I brought into the marriage because those debts were incurred by me before we got married.” If you don’t do that, then later there’s going to be the ability of the creditor to get a judgement and file a lawsuit and both spouses may end up finding that they have both been named in the lawsuit and they both have issues now with regard to the creditor trying to collect the debt from them.

Those are some of the things that go on and we can evaluate each person individually and make a good decision as to whether or not both spouses should file. Those are the issues that come up when people ask me the question “Does my spouse have to file if I need to file?” Sometime you have somebody who may be in a situation like maybe they already filed bankruptcy. The husband and wife got married and the husband had previously filed bankruptcy and it was five years ago. Now it’s their situation where there is a bankruptcy that needs to be filed. The wife has not filed in the last eight years but the husband did. We can’t include the husband in filing a new bankruptcy because he is ineligible because we have to wait eight years from his previous filing of a Chapter 7. The wife is eligible to file and that could be a benefit for them to have still protected community assets.

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Katherine:

All right. I was wondering, because it sounds complicated but the short answer is “Yes, this is possible.” What I really want to know, what’s a type of situation where one spouse would need to file bankruptcy but the other spouse doesn’t need to file bankruptcy? I’m thinking of married couples as everything is one, but you’ve just given us an illustration that that may not be the case. What’s the case when one person would need to file but the other one doesn’t need …

Pete Moak:

Basically this is what I was talking about when I was saying that one spouse may have incurred a lot of debt before he got married. Let’s say the husband came … He’s loaded down with a lot of debt but he wants to get married, and that’s fine, go ahead and get married. That spouse, the husband in this particular case, needs to file bankruptcy to eliminate all that debt that he brought into the marriage. That would be a situation where he would need to file. Maybe the wife doesn’t need to file because she’s been current on her debts and her credit report looks pretty clean. There’s no reason for her to have to file bankruptcy. It’s the husband’s debt that he brought into the marriage that we need to eliminate.

Katherine:

I see.

Pete Moak:

Okay.

Katherine:

Okay. That makes sense. You were saying that, but it just didn’t click for me. The whole time I was thinking “Oh my gosh. Why would he need to, or why would she need to and the other person would not have to?” This has been excellent. This covers a lot. I think with finances being one of the main reasons couples separate, I think having something like this, given that they qualify, can help save them especially if they can talk about this because this seems pretty tough to have to say “Listen, I got myself into all of this …” for whatever reason, whether a business deal went wrong or something like that, but finances are always tough to talk about. Having someone as knowledgeable as yourself to help them find a solution is always great.

Have you found that couples leave from you improved? I’m sure the person does but have your services helped a couple to improve? Because maybe the financial strain was there and now it’s removed.

Pete Moak:

Yes, absolutely. The finances of our clients improve both individually and as a couple. When the one spouse that has debts has been able to eliminate those debts and they are able to rebuild their credit in an amazingly short period of time and that would be another subject to talk about is how can I get my credit rehabilitated after filing bankruptcy? We have an amazing program for that. I’m anxious to talk about that and maybe we’ll do that next time.

Katherine:

Awesome. Pete, tell people how to get in touch with you outside of This Needs To Be Said.

Pete Moak:

All right. Of course, you can call the Moak Law Firm. My full name is Walter E. “Pete” Moak, Pete is a nickname. The phone number here at The Moak Law Firm is 480-755-8000. If you dial Extension 1, of course you’ll get a prompt to tell you this. Extension 1 will go to my assistant who schedules appointments and we’ll be happy to schedule an appointment either in the office and sometimes people are in need of having a question answered and so I will allow for a brief telephone consultation. We can schedule either a telephone consultation or an in-office appointment here at The Moak Law Firm. 480-755-8000, Extension 1.

Katherine:

Awesome. Until next time, thank you so much and have a wonderful day.

Pete Moak:

Thank you. Take care.

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