When you file for bankruptcy without your spouse, how the debts and property you both share gets affected will largely depend on whether the state you reside in follow common law or community property system. In this article, I will briefly give an introduction to the two as well as explain how you and your spouse will be impacted under each when one of you files for bankruptcy.
Map of the United States with States following the community property system in red and the common law property ones in grey. Note: In some grey states, such as Alaska, you are given the option to opt for into community property instead.
Community Property and Bankruptcy
Under community property law, unless agreed to otherwise, most assets are considered jointly owned by both you and your spouse. Therefore, when either one of you files for bankruptcy, the property will become part of the bankruptcy regardless of who owns the title. However, there is an exception to this rule. Assets that were brought prior to the marriage or received individually through inheritance or gift can be legally maintained as separate and hence not liable when the other spouse files for bankruptcy. In some community law states, including the State of Texas, it may be far more advantageous if you and your spouse file for bankruptcy together. By doing so, both of you can claim the full amount of exemptions and protect more of your joint assets from liquidation. Regardless of whether you file for bankruptcy with or without your spouse, they will also have their debts discharged on joint assets on the conclusion of the process.
Common law Property and Bankruptcy
In common law property states, each spouse is a separate legal entity. Hence, when you file for bankruptcy in such states, only those assets you own the title to and have brought yourself will be considered liable under bankruptcy. In case of titles jointly owned, both spouses are considered to have equal stakes unless agreed to otherwise and only your portion of the property becomes part of the bankruptcy. However, in cases where the property cannot be realistically divided, such as your house, the trustee will sell the whole property and pay your spouse their due share. As previously emphasized, since both of you are separate legal entities under common law, your spouse still being liable for their debts once you get a discharge. In the case of joint debts, they will still responsible for their half of the outstanding amount.
Consider Hiring an Attorney
Going through the bankruptcy process can be a difficult and emotionally draining experience for both you and your spouse. But it doesn’t have to be. A seasoned lawyer can best help you navigate through the process and achieve outcomes more favorable to you and your spouse. To schedule your free consultation with our office, feel free to call 512-640-3440 or contact directly online.