You may think if only one spouse files for bankruptcy, it may not be reported on the non filer’s credit report. This is considered to be one of the advantages as non filer spouse’s credit report may not get affected. Therefore, the non filer spouse’s credit report can be used in future to take out a new loan on favorable terms. As a matter of fact, most of the people may not be aware of the fact that a married couple’s debts and properties are treated in bankruptcy on the basis whether the couple is living in a community or common law property state.
What is Community Property and Common Law Property State?
The state law may determine what rights you have in the property acquired during marriage and its effect on the filer and non filer couple. In most of the cases, the Common Law Property states follow the rules of equitable distribution. In community property, the property acquired during marriage is owed by both the spouses. So, the property is a part of the bankruptcy court on the basis of common law or community property state.
In common law property state, the court discharges the filer’s financial liabilities to pay dischargeable separate debts and joint debts. The filer spouse’s discharge does not affect the non filer spouse’s liability towards any joints debts. So, the non filer spouse is liable to pay back his or her separate debt as well as liable to pay back the joints debt incurred after marriage.
Under Community Property state law, only filing spouse gets the discharge and it is similar to the Common Law Property state. However, under this rule, the non filing spouse may get an additional benefit that is the dischargeable community claim may get discharge with respect to community property. Well, the community property owned by the non filing spouse is considered to be “off limit” to the discharged creditors. This benefit bestowed to the non filing spouse is termed as “Phantom discharge.” Some of the community property states are as follows Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Do you know the legal impact of bankruptcy on the non filing spouse?
Here are certain points that you need to consider when a single spouse decides to file bankruptcy:
Change in the nature of the joint debt if a single spouse files bankruptcy:
If the filer spouse files under Chapter 7 Bankruptcy, then his/her debt will be discharged. In this situation, the creditors can approach the other spouse to retrieve the owed amount from joint debt. But under Chapter 13 bankruptcy, the debt is repaid through a repayment plan. As long as the debt is repaid through a court monitored repayment plan, the co debtor may not receive a collection call from the collection agency.
Effect on the credit, property and account:
In reality, one spouse’s filing of bankruptcy may not affect other non filing spouse’s financial state. Bankruptcy of one spouse may not make another spouse become bankrupt.
Collection calls for spouse’s debt:
The collection agency may pursue both the spouses to collect from only the non filing spouse. If you’re still harassed by the collection agency even if you don’t owe the debt, then you’re required to keep one of the important facts in mind. Make sure you ask the debt collectors to validate the debt for which they’re sending a letter addressing you even after a discharge. If you’re filing for bankruptcy, then you can request the court for an automatic stay to stop the collection activity.
Therefore, you’re required to keep the above mentioned points in mind if you want acquire information on the consequence of legal effect if only one spouse files for bankruptcy.