Bankruptcy is often a solution of last resort for people who are overwhelmed by debt. Thousands of Americans declare bankruptcy every year due to medical debt, job loss, and disability. The process is intended as a safety valve that allows people to start over again, but when one spouse needs to file for bankruptcy and the other does not, the situation can get complicated.
Consulting an attorney experienced in South Carolina bankruptcy law is key to an efficient and successful application. The state has its own rules that apply to property and exemptions, making it critical to have specific knowledge of the process.
Seven Things to Know About Filing for Bankruptcy Without Your Spouse
If one spouse decides to file for bankruptcy, there are more things to consider than when a single person files. It’s critical to determine how it will impact the non-filing spouse before moving forward. One of the first steps is deciding which form of bankruptcy to file. Chapter 7 often requires liquidating (selling) assets to pay creditors, while Chapter 13 involves a plan for paying off non-dischargeable debts over time.
The following should also be taken into consideration:
- Household income and expenses will be considered by the court. That means that the non-filing spouse (as well as any other qualifying individual) must disclose information about their income on Means Test forms. This information is used to determine Chapter 7 eligibility or Chapter 13 payment plans.
- Jointly-held debts don’t disappear when one spouse files for bankruptcy. If both spouses are cosigners on credit cards, a mortgage, a car loan, or another financial obligation and one files for bankruptcy, the non-filing spouse is still responsible for the debt. In addition, the non-filing spouse may be pursued for the entire debt, not just a portion of it.
- The automatic stay is applied differently according to the bankruptcy chapter filed. An automatic stay usually stops all creditor attempts to collect consumer debts (including phone calls, emails, garnishing wages, etc.) when a person files for bankruptcy. But in a Chapter 7 individual bankruptcy, creditors can still pursue the non-filing spouse for joint debt. If a person files Chapter 13 bankruptcy, the non-filing spouse may be protected by a “co-debtor stay” while the repayment plan is in effect. Creditors can petition the court to have the stay lifted.
- Credit scores and credit reports of non-filing spouses are not impacted by a spouse’s bankruptcy. However, if the non-filing spouse holds joint accounts and does not make prompt payments on debts that continue in their name, their credit will be impacted.
- South Carolina has its own exemptions for bankruptcy filers. In many states the bankruptcy applicant can choose between the federal and state exemptions–but not in South Carolina. A positive aspect of the state’s exemption rules is the generous protection of the equity in a home.
- Support obligations do not go away. It’s not possible to discharge certain kinds of debt, such as alimony, child support, and court-ordered penalties, along with most student loans. Filing for divorce and bankruptcy close together can complicate both: aspects of divorce proceedings like property division is likely to be paused until the bankruptcy process is complete, which can delay finalization.
Take Time to Plan Your Bankruptcy
Thinking through all of the potential outcomes of bankruptcy is a crucial part of planning. Having the counsel of an experienced attorney from Lam Law Firm will help you decide which form of bankruptcy to pursue, how to apply exemptions, and the effects the process will have on both spouses. Guidance from an expert in the law will minimize impacts and get you back on the road to financial solvency. Call for a consultation today.
