ABA Family Legal Guide

Consumer Bankruptcy

Straight Bankruptcy: Chapter 7

Chapter 7 Defined

How do exemptions work if you are married?

Spouses are permitted to file jointly for bankruptcy, but whether it is to their advantage depends on many factors such as how closely their finances are entwined and whether they live in a community or separate property state (see Home Ownership, chapter 5 for definitions). You should be wary of joint filing if divorce is a likely possibility.

In joint cases, each spouse must claim exemptions under the same law, with both relying either on state law or on federal law. If they each want to claim exemptions under different law, they need to file separate cases. When married debtors elect to apply federal exemptions (and often when they elect to apply state exemptions), each spouse can claim the full exempt amount on his or her own behalf, in effect doubling the amount of exemptions to which a single person would be entitled.

In some cases, such as when one spouse has debts and the other is debt-­free and has assets, it might be preferable for only the spouse with debts to file for bankruptcy. In about a third of states, creditors of only one spouse are barred either completely or in large part from reaching real and/or personal property owned by a debtor and nondebtor spouse as joint tenants or tenants by the entirety. Give your lawyer copies of your deeds, bank account statements, and car titles to find out whether your creditors can reach your assets.