For Richer or Poorer: Bankruptcy for Wife?

Dear Bankruptcy Adviser, My question concerns how bankruptcy laws apply to married couples. I am specifically wondering if it's possible for one spouse to file bankruptcy individually, while the other spouse doesn't make a bankruptcy filing. My husband is a veteran and receives a veteran's pension. If I were to file for bankruptcy on my own, would that affect his pension? Our financial difficulties stem from a bad real estate investment. Most of our debt is in my name only, and only my Social Security number appears on most documents. We are trying to figure the best way to cut our losses.

-- Julie

Dear Julie, If you're married, you can file bankruptcy on your own. This is very common. One of the most common reasons for a one-spouse filing is when the couple has recently married and either the husband or the wife has an unmanageable amount of debt.

You can also file bankruptcy without the assistance of an attorney and may be able to do so in your case. However, you must remember one important fact: Even though you can file on your own, your husband's income and assets likely must be listed in your bankruptcy case. Simply because you have nothing but debt in your name does not mean you have no assets. You could be legally entitled to a percentage of your husband's assets, which obviously would be of interest to your creditors in a bankruptcy.

In answer to your specific question, the good news is that your husband's pension should be protected in any case.

An important issue that could affect your filing independently is whether you live in a community property state. In a community property state, most property acquired during the marriage (except for gifts or inheritance) is owned jointly by both spouses. Joint ownership is automatically presumed. However, you may be able to prove that a particular asset is not community property with specific evidence. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In some cases, community property laws also apply in Alaska. Puerto Rico is also a community property jurisdiction.

Simply because you don't live in a community property state doesn't mean you are cleared to exclude the nonfiling spouse's assets, however. Some people believe keeping all assets in the name of one spouse and all debts in the name of the other protects the assets while making the debts eligible for elimination in bankruptcy. This is not true. You need to be careful to properly disclose, when necessary, all marital assets.

It's reasonable to hope that by filing on your own you can protect your husband's credit. The recovery from bankruptcy can be faster because the nonfiling spouse can help the filing spouse rebuild credit. But again, one spouse can't file and exclude all the other spouse's income and assets.

Here's an example of what I am referring to. Let's say one spouse is a stay-at-home parent who wants to file bankruptcy individually and exclude the other spouse's income. Yet the nonfiling spouse makes a substantial monthly salary. It is not reasonable for the nonworking spouse to be absolved of debts when the couple may have the means to pay back some of the bills.

There are other issues to consider when one spouse wants to file bankruptcy individually. Although you can file bankruptcy without an attorney, the consultation might be well worth it to expose any potential pitfalls.