The decision to file bankruptcy is not one to take lightly, and if you are married, you must consider the consequences even more carefully. A married couple does not have to file bankruptcy together; one spouse can file bankruptcy without the other spouse. If you file an individual bankruptcy case and your wife stays out of the bankruptcy, the effects will still reach her on some level.
Your bankruptcy should not affect your wife's credit. Bankruptcy will stay on your credit report for 10 years; if you file bankruptcy and your spouse doesn't have to, you'll still have the benefit of your spouse's good credit. However, if you have any joint debts, she will be responsible for any portion you don't pay through your bankruptcy
Joint Unsecured Debt
If you and your wife are joint account holders on any credit cards, personal loans or any other type of unsecured debts, she will still be legally responsible for the entire balance. The bankruptcy discharge is personal to you. Bankruptcy does not wipe out unsecured debts; rather, it wipes out your personal liability. The debt still exists, and anyone who co-signed or co-applied for the debt will still be obligated to repay it. The creditors cannot collect on the debt during the bankruptcy, but once the bankruptcy is over, any creditors to whom you owe joint debts can start to collect from your spouse.
Joint Secured Debts
A debt is secured if you promised collateral in exchange for a loan and the lender filed appropriate documents. Mortgages and car loans are the most common secured debts. If you default on a secured loan, like a mortgage, the lender can take the collateral, like the house. The lender will sell the property at auction, and you will owe the deficiency balance. The deficiency balance is the difference between what you owed on the property when the lender sold it and the amount the lender received at the sale. Bankruptcy discharges your obligation to repay a deficiency balance.
If you want to keep secured property in a bankruptcy, you must repay the loan. If you want to surrender the property and discharge the deficiency balance, you can give the property back. However, if your wife co-signed or co-applied for the loan, she will be responsible for any deficiency balance left over after your bankruptcy.
Chapter 13 and Disposable Income
If you file a Chapter 13 case, the affect on your spouse is considerable. A Chapter 13 bankruptcy is a repayment arrangement. Over a three-to-five-year period, you must pay a trustee every month and the trustee pays your creditors.
The issues discussed above all come into play in a Chapter 13, although the bankruptcy protection lasts years instead of the months it lasts in a Chapter 7. In addition to joint debt issues, however, a decrease in disposable income will affect your spouse. In a Chapter 13 case, you must commit all your disposable income to the Chapter 13 plan. You must file a budget with the court showing your income and your expenses. Any money you have left over after necessary expenses must go to the Chapter 13 trustee. Necessary expenses include things like food, housing, utilities, taxes, pet care, personal care, gas, car payments, child support and alimony. These expenses do not include salon trips, private school tuition or extracurricular activities. If your spouse has become accustomed to a certain lifestyle and you file a Chapter 13 case, she may find herself restricted by your Chapter 13 plan payment, which the court will base on your new, tight budget.