Bankruptcy is all about strategy. And sometimes the biggest strategic decisions are the ones that people don’t think much about.
For example, there are three ways for you and your spouse to handle a bankruptcy.
- You could file together.
- You could file separate bankruptcy cases.
- One spouse files while the other spouse doesn’t.
In New York, there are reasons why it might be a good idea for one spouse to stay out of the bankruptcy entirely.
Much will depend on who owns the debt. New York is not a community property state. This means you don’t automatically assume a debt just because your spouse took it out unless you chose to cosign it.
So if most of the unsecured debt is in your name it might make sense to file alone.
If you also have secured debts in your name much will depend on the type of bankruptcy you plan to file. If you plan to file Chapter 7 then you’d lose those secured debts. It might make sense for both of you to file so that you can put as much money as possible into starting over.
If you plan on filing a Chapter 13 then it might depend on how the Chapter 13 plan will impact your household finances. If you hold most of the debt then your household budget may be able to absorb continuing to pay on your spouse’s debts while paying your Chapter 13 plan.
If you don’t, then filing for bankruptcy won’t bring your home very much relief. Filing when it doesn’t do very much good isn’t usually helpful.
What if you both filed separately?
If that’s the case, then both of you could file a different bankruptcy Chapter. For example, if your mortgage is in your name then you could file Chapter 13 to preserve the home while allowing your spouse to file Chapter 7 in order to completely wipe out all of your spouse’s unsecured debt.
This would make sense if your spouse can pass the bankruptcy means test (which will still include your income regardless of filing status) and may be the most advantageous way to keep your Chapter 13 payments as low as possible.
This issue is a great example of why it’s a good idea to work with a lawyer when filing your bankruptcy case. You need someone who can run the numbers and who knows how the law will impact your family in certain scenarios.
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