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Can one spouse file bankruptcy and not the other?

On Behalf of | Jun 9, 2020 | Bankruptcy

Discharging debt through a Chapter 7 bankruptcy is one way to find relief. However, what if your spouse does not have the same liability? Do you both have to file?

The law does not require spouses to file bankruptcy. When only one file, it may prove problematic for the other. Find out more about how bankruptcy may affect both spouses if only one moves forward.

You and your spouse own debts and assets

According to the state statutes, Texas is a community property state. The court considers all property bought during the marriage and all income earned to belong to each spouse equally. Chapter 7 bankruptcy proceedings may require you to liquidate some of these assets to pay creditors. This means anything purchased while married is up for grabs. Your spouse could lose something in his or her name if the court proves he or she got it while married.

Creditors can attempt to collect from your spouse

After your discharge, there is a chance that creditors will now turn to your spouse to collect. Remember, your bankruptcy protects you, but since your spouse did not file, he or she does not have the same luxury. However, there is a phenomenon that may occur in community property states called a phantom discharge. When a creditor tries to pursue the other spouse’s property or income, and you can prove it is community property, the creditors must stop. Your discharge protects all marital property because of your co-ownership. Thus, your spouse benefits from your bankruptcy.

In some cases, when one spouse decides to file bankruptcy, the other one may choose to join. This eliminates the possibility he or she will file down the road, and thus expenses twice. More importantly, it allows both to start over with clean slates after discharge.