If you’re planning to file bankruptcy, you may be wondering whether filing bankruptcy while married is a good idea. There are certain benefits to doing so jointly that will help you keep more of your property and dispense with more of your debt. But at the same time, the bankruptcy may negatively impact your spouse if you’re not careful.
At this point, you may be asking yourself, “Can I file bankruptcy without my spouse?” Yes, you can. But even in a common law property state like Nebraska, individual bankruptcy may still hurt your spouse. Let’s take a look at how the state treats your debts and properties when you’re filing bankruptcy while married.
What Is Community Property?
Nebraska is not a community property state — it’s a common law property state. So what’s the difference?
In community property states like California and Texas, most if not all of the property acquired during your marriage is officially owned by both spouses, no matter whose name is on the title. Therefore, all that property can become part of your bankruptcy, which can hurt your spouse financially if you don’t have enough bankruptcy exemptions to cover all your joint assets. In such a case, filing bankruptcy as a couple is preferable to individually filing bankruptcy while married, and this is what almost always happens.
What Is Common Law Property?
However, in common law property states like Nebraska, the rules of equitable distribution determine what properties belong to who, very like the way most states divide assets after a divorce.
Basically, anything that you brought into the marriage, that was given or be quested to you, or that has your name as sole owner on the title is considered separate property: yours alone. That property applies toward the bankruptcy first. You both own half of any joint marital property (property acquired during your marriage in both your names), and the bankruptcy applies only to your half of an asset. This may mean, however, that you have to sell the asset to get the value in cash, an issue we’ll cover in a moment.
What Properties Go Toward Your Bankruptcy?
In Nebraska, the courts will take into account your separate property and your half of any common marital property when you are individually filing for bankruptcy while married. Your spouse’s property will not become part of the bankruptcy. But — and this is a big but — if you don’t have enough exemptions to cover all the properties you own half of, your Chapter 7 trustee can force you to sell those properties, despite them being half-owned by your spouse. Your spouse will lose the property but will get half the sale proceeds; your half will go toward paying your creditors.
The good news is that the trustee has to at least try to divide the property before selling it. This works best with land, which they can easily divide, or with properties that have multiple parts. The trustee must also demonstrate that selling the property will benefit both co-owners more than it hurts them.
In Chapter 13 filings, you’re unlikely to lose joint property, since this kind of bankruptcy generally involves settling up structured payments to catch up with the arrearage on your debts.
Your Discharged Debts
If you file individually, your bankruptcy will eliminate only your separate dischargeable debts and your half of your joint debts. Your spouse still has to take care of their half. If you’re the only spouse with financial woes, it makes sense for you to file individually, as long as you can cover joint properties with exemptions and avoid their forced sale. If, however, your spouse shares your debt issues, you’re better off jointly filing bankruptcy while married. That way, you’ll have more exemptions, and the dischargeable debts of both of you are eliminated. You may still have to sell joint properties that exemptions don’t cover, though.
If You Have Questions About Filing Bankruptcy While Married, Speak to an Experienced Bankruptcy Attorney
Bankruptcy law can be confusing in any state. And it’s often hard to tell whether you should file individually when married, or as a couple. For the best results, you need legal counsel. If you live in the Omaha area, call Burke Smith Law. We know you don’t want to hurt your spouse. We can help you figure out which option for filing bankruptcy while married works best for you.