Filing Bankruptcy in Michigan: Does Your Spouse Have to File Too?
A common misperception is that if you file for bankruptcy, your spouse is required to file as well. This is simply not true. You have the choice to file jointly or file by yourself. At the time of the free consultation we may discuss the implications of filing alone or with a spouse. There are factors to consider and we will carefully lay out your options.
Call us today at 866-261-8282 to speak with a qualified Michigan bankruptcy attorney. We have six convenient office locations in Detroit, Ann Arbor, Dearborn, Flint, Warren or Southfield.
Filing Bankruptcy and Your Spouse’s Credit
Another common concern is that if you file for bankruptcy, it will negatively impact your spouse’s credit. Here is the breakdown:
- If your spouse is not filing, your filing will have absolutely no effect on his or her credit.
- If you file jointly, in most cases your credit score will increase.
- A Chapter 13 bankruptcy typically increases your credit score over the course of the repayment program with no more late reports to the credit bureaus. The score is improved as the debt-to-income ratio reduces and you have established timely payments to creditors.
- A Chapter 7 bankruptcy typically causes an increase in credit score about 12 months after the court discharge. This is surprising information to most people, but we have gathered this data from the predictive credit score function when we run pre-filing credit reports for our clients. For about 80% of clients, there is a predicted increase in their credit score post-filing, Read out website page on Chapter 7 and credit repair for more information. Your credit will re-bound quickly if you manage new credit wisely after your court discharge. By showing a good track record of timely payments to creditors and with an improved debt-to-income ratio after the filing, you could expect to be in a position to purchase a house within 2 -3 years, if that is your goal.
How Do You Determine Who Should File?
Deciding what type of case should be filed and who should file depends on several factors:
- What is the nature of the debt? (i.e. secured like a home loan or unsecured like a credit card bill)
- Is there joint debt? If so, what is the amount of the debt?
Considering the above, each spouse has the individual choice on whether or not to file. If both spouses have significant debt (individual or joint) we typically recommend they both consider filing as it is less expensive to file jointly than 2 singular cases. We also want to ensure that the couple leaves the process with a balanced budget and all obstacles removed for a fresh financial start. If the debt is mainly in one person's name, then we would typically recommend that just that spouse file. This allows the non-filing spouse to apply for immediate credit like a home mortgage, etc., if desired.
Bankruptcy Documents and Your Spouse
If only one spouse should choose to file, the court will still need to non-filing spouse to provide proof of their income. When calculating whether a client qualifies for a Chapter 7 or a Chapter 13 bankruptcy the court looks to total household income and total household expenses. In the case of a Chapter 13, the non-filing spouse may be required to fund a portion of the plan payments depending on the income situation.
For the non-filing spouse:
- Any required payments are not taken directly out of a paycheck. Usually, it is set up as a bank account withdrawal.
- The non-filing spouse is not required to go to court or sign any paperwork.
- The non-filing spouse is responsible for all debt they originally signed on for – including joint debt. The filing spouse cannot eliminate the obligation of a non-filing co-signer. If only one spouse should file it leaves the creditor with the only option of pursuing the non-filing spouse.
Experience is on Your Side
For some couples, coming to a consensus on how to best handle outstanding debt can be stressful. Our firm is dedicated to providing as much carefully considered information and advice to help ease that tension. We offer free consultations to couples or we can meet with one spouse individually to determine the right course of action.
You can trust our experience and expertise to help guide you through the process regardless of who decides to file and which type of bankruptcy you choose . Call us today at 866-261-8282 to speak with an attorney about your debt resolution questions. We offer confidential appointments at any of our six Michigan offices: Detroit, Ann Arbor, Southfield, Warren, Dearborn and Flint.