Comprehensive, Client-Oriented Service Get The Personalized Attention Your Case Deserves SCHEDULE A FREE CONSULTATION

How Bankruptcy Affects Your Spouse

Schwartz, Hanna, Olsen, & Taus, P.C. March 27, 2023

Frustrated woman and man in kitchen due to financial situationBankruptcy is a difficult decision to make and can have a significant impact on your finances and credit score. If you are married, the decision to file for bankruptcy can also affect your spouse, even if they are not filing with you. 

It’s essential you understand the pros and cons of filing individually or as a couple. Without that understanding, you won’t know how to best proceed with your bankruptcy filing, which should give you the best options moving forward. Everyone’s situation is unique, which is why you may want to speak with our bankruptcy attorneys at Schwartz, Hanna, Olsen, & Taus, P.C., to get legal guidance tailored to your specific circumstances.  

Equitable Distribution in New Jersey   

In New Jersey, married couples are subject to equitable distribution laws when they decide to divorce or dissolve their marriage. This means that all marital assets must be divided fairly between both spouses upon divorce or dissolution of the marriage. Assets include any property acquired while married such as cash, real estate, business interests, investments, and retirement accounts. When one spouse files for bankruptcy before the divorce process has begun, it could have an effect on the equitable distribution of assets. 

How Can Bankruptcy Affect Your Spouse?  

Both debt and bankruptcy can affect your spouse in a variety of ways.  

For example, when a creditor files a lawsuit against an individual who is part of a married couple, the debt collectors may pursue both spouses for repayment regardless of who incurred the debt in the first place. This means that even though only one spouse has filed for bankruptcy, both spouses may be affected if creditors attempt to collect from them both.  

Also, it is important to note that if one spouse does not sign the joint filing petition, their assets may remain protected from creditors during the bankruptcy process. 

Filing Bankruptcy as an Individual  

When a person files individually, only their assets are reviewed and liquidated. This means that any debt only belongs to them, so if they have a spouse or partner who has no debt, their assets are not at risk.  

However, when filing for bankruptcy on an individual basis, the potential debtor must pay all of the fees associated with the process out-of-pocket. These fees can range from hundreds to thousands of dollars depending on where you live. Additionally, because an individual filing does not cover their spouse’s debts as well, creditors may still come after them if they are married or in a partnership. 

Filing Bankruptcy as a Couple  

The primary benefit of filing jointly is that all of your debts will be discharged in one process. This means that if one partner has significantly more debt than the other partner, then both parties will benefit financially from filing jointly as opposed to filing separately. Additionally, when filing jointly, both partners can split the administrative costs associated with the process. Therefore, it may be cheaper overall than if each party filed separately.   

The primary disadvantage to filing jointly is that you are responsible for all debts incurred by either partner during your marriage or partnership, regardless of whether you had anything to do with them or not. This means that if your partner has incurred considerable debt due to gambling or other activities outside of your relationship, then you may be liable for those debts as well when you file jointly.  

Factors to Consider  

When considering whether or not to file jointly or individually there are several factors that should be taken into account, including the amount of debt owed, exemptions allowed, and associated costs with each option.  

  • The amount of debt. The amount of debt owed will determine if filing jointly makes sense since individual debts cannot exceed certain limits set by the law when filing jointly.  

  • Exemptions. Additionally, certain states allow couples filing jointly higher exemption amounts than those filing individually, so this should also be taken into consideration when making your decision.  

  • Costs. Lastly, it is important to consider the bankruptcy-related costs since these vary depending on which option you choose, as well as other factors (such as attorney fees and court costs associated with either choice). 

If you cannot make the decision yourself, you might want to consult with an experienced bankruptcy attorney who will review your particular situation and provide advice tailored to your specific circumstances.  

Take Legal Action Today   

Bankruptcy can be a complex process, and it’s important to understand how it can affect your spouse prior to making any decisions about filing jointly or individually. If you’re located in the New Jersey areas of Somerset County, Morris County, Passaic County, Essex County, and Bergen County, or anywhere else in the state, reach out today. From our office in Middlesex County, New Jersey, our bankruptcy attorneys offer a free consultation to discuss your particular situation. Call today for support.