Are you still liable for a spouse’s debt after your spouse files for bankruptcy?

Community Property Rules vs. Common Law Rules

Whether or not you are liable for your spouse’s debt depends on whether or not you reside in a “community property state.”  In states that follow community property rules, debt that is incurred by one spouse during the marriage is owed by both spouses.  Likewise, the income of one spouse accumulated during a marriage is considered the income of both spouses in a community property state.  In a community property state a creditor can go after the assets of both spouses to pay for the debt that one spouse incurred.  In a state that follows common law rules a creditor can only go after joint assets to pay a debt that one spouse incurred if that debt was incurred for a family necessity.  The following states follow community property rules:  Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Filing Bankruptcy in a Community Property State

In a community property state if only one spouse files for bankruptcy all of the community debt of the spouses will be discharged.  In a common law state only the debt incurred in the name of the spouse alone that is filing for bankruptcy will be discharged.  For example, if one spouse files a Chapter 7 bankruptcy and both spouse’s name are on the mortgage to their home, the non-filing spouse is still liable on the mortgage even if the filing spouse’s Chapter 7 bankruptcy is discharged.  So if payments fall behind once the bankruptcy is discharged the bank can foreclose on the house and hold the non-filing spouse liable on the debt.

If you are married and considering filing a bankruptcy singly rather than jointly with your spouse, contact Dailey Law Offices to discuss the pros and cons of filing bankruptcy singly vs. filing with your spouse.