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Dear Bankruptcy Adviser,
If my wife files for Chapter 7 bankruptcy, can I include any debts in it that aren't in her name but are in mine? I wasn't sure since we are married.
-- Heath
Dear Heath,
Your wife cannot file a Chapter 7 bankruptcy, include your debts, and eliminate those debts that are only in your name. Your wife can file a Chapter 7 bankruptcy and eliminate all the debts in her name, but the accounts in your name will still exist after the bankruptcy is over.
If you choose this approach, then the success of your bankruptcy
will depend on the state in which you live. For
example, in community property states, such as California,
you may still face lawsuits and judgments even
if your name is not on any of the credit cards.
In California, it is not uncommon for a married
individual to avoid filing bankruptcy and avoid
judgments; however, some creditors aggressively
go after the spouse when they learn that only
one spouse filed for bankruptcy protection and
the other did not.
The majority of states are not governed by community property law. In those states, it is possible for one spouse to file, eliminate the debts in his or her name, and continue paying on the other spouse's debts. The creditor should not have the right to sue the nonfiling spouse so long as both spouses did not sign on the credit card application.
There are reasons to file one person at a time. Read my previous column, "Filing bankruptcy one spouse at a time," for some guidance.
Alternatively, one spouse can file
Chapter 13 bankruptcy and include all credit card
accounts. In Chapter 13, your spouse will have
a monthly payment and all debts will be eliminated
after the 36- to 60-month payment plan. However,
be very careful with this approach, because you
need to make sure that all creditors get paid
the balance in full. If you try to include your
bills, but only pay back a percentage of the debts
over the course of the bankruptcy, then you could
still be liable for the bills after she completes
her Chapter 13 bankruptcy plan.
Before choosing to file an individual bankruptcy, make sure
you do not have your name on any credit card accounts
with your spouse. Call each creditor and provide
your Social Security number. This is the best
way to determine whether you have accounts in
your name. One common problem arises when a spouse
calls to put the other spouse on an account as
an "authorized user." This allows the nonsigning
spouse to use the card, but not face potential
liability when a default occurs. It is very common for the creditor
to ask for the nonsigning spouse's Social Security
number. The number is provided and put into the
creditors system. Once the creditor has both spouses'
Social Security numbers, the creditor will sue
the nonbankrupt spouse even without having a signature.
As a result, you will need to defend yourself in any future
lawsuit by proving that you were nothing more
than an authorized user and not personally liable
for the debts. This could cost you more than you
owed in the first place, because you will need
to fight the creditor in court. You will need
to file a timely answer to the lawsuit or else
the creditor will get a default judgment against
you. This could end up making the bankruptcy filing
a complete waste of time and money because you
could still get stuck with a judgment.
Prior to filing, even if you file without an attorney, I would suggest discussing your specific situation with a local bankruptcy attorney. Most attorneys do not charge for the initial consultation, but this will provide you with valuable insight into your specific case.
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