Although spouses often file for bankruptcy jointly, there are situations where one spouse carries a much greater debt load and can no longer afford to make debt payments. Bankruptcy protection allows the spouse filing bankruptcy to liquidate or restructure individual debts if a couple does not wish to file jointly.
Although one spouse may not be filing, the bankruptcy requires a computation of household income so the non-filing spouse will have to provide financial information as part of the process. That said, assets held by the non-filing spouse are not subject to a creditor or subject to bankruptcy court.
Modify the Mortgage to Retain Family Ownership of a Home
In situations where a couple shares a mortgage and only one spouse is filing for bankruptcy, it is often advisable to modify the mortgage to remove the person who is filing for bankruptcy from the obligation, allowing the family to retain ownership and continue living in the home once one person declares bankruptcy.
Individual Bankruptcy and Separate Property
If couples are unable to modify the mortgage to remove the spouse filing for bankruptcy, typically each co owners’ individual interest is treated as separate property, meaning the non-filers portion of a joint asset will not be part of the bankruptcy estate and is therefore off limits to the trustee to cover debt owed to creditors.
However, in some cases a trustee may be able to sell the entire property if the filer’s portion is not exempt from bankruptcy and the trustee can demonstrate the benefit of selling the property outweighs any detriment to the joint owner. It follows that the co-owner is reimbursed for their share from the proceeds of the sale, before the creditors are reimbursed for any debt.
Tenancy by Entirety & Bankruptcy
In certain states including Illinois, married couples may hold property as a single marital entity in tenancy by entirety. Although state laws vary, if only one spouse files for bankruptcy, a home owned as a tenancy by entirety may be exempt from bankruptcy.
Contact an Experienced Bankruptcy Lawyer for Help
It is important to discuss your concerns with an experienced bankruptcy lawyer to protect your rights in an individual or joint bankruptcy. Your attorney can advise you on the best strategy to protect your assets while discharging maximum debt. Contact Peoria Illinois bankruptcy attorney Charles E. Covey for more information today at 309-674-8125.