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Ask Dr. Don

Married filing separately -- for bankruptcy

Dear Dr. Don,
Can one spouse file bankruptcy on his or her debt alone, or is the entire household considered one entity?

Dear Ronnie,
One spouse can file for bankruptcy without the other joining the petition. Whether it makes sense for one spouse to file depends on who owns what and who owes what.

Nine states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- are community property states. In those states community property includes real estate, tangible assets, and the earnings of both spouses acquired during the marriage. Assets acquired by gift or inheritance or assets owned before marriage are not community property.

In these states all community property is part of the bankruptcy estate. Property held by the filing spouse is used first, then the nonexempt community property is used to pay creditors.

The other states are common law, or equitable distribution, property rule states where the filing spouse's bankruptcy estate includes property held separately and half of the jointly held marital property. The nonfiling spouse doesn't have to worry about the effects of the filing spouse on separately held property -- just the jointly held property.

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If the bankruptcy court believes that assets were transferred to the non-filing spouse simply to remove them from the bankruptcy estate, it can declare that transfer fraudulent and include the assets in the bankruptcy estate.

As stated earlier, the decision to file a joint petition or a single petition for bankruptcy depends on who owns what and who owes what.

There are also different types of bankruptcy filing. A Chapter 7 filing is a liquidating bankruptcy and will discharge the debt while a Chapter 13 filing sets up a repayment schedule for the listed debts. Consult with a bankruptcy attorney to ensure that you're making the right decisions.

-- Posted: May 3, 2002

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See Also
How do I file for bankruptcy?
10 ways to bounce back from bankruptcy
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