Chapter 13 bankruptcy allows the debtor to repay part or all of their debts over the course of 3 to 5 years with any remaining unsecured (and dischargeable) debt being discharged from bankruptcy at the end of the repayment term. For debtors who are married, filing Chapter 13 bankruptcy may become complicated if they choose to file bankruptcy alone. Let’s take a look at some of the problems a debtor my face.
A Chapter 13 bankruptcy filing may become more complicated and hazardous for the non-filing spouse if the unsecured debt has both the filing and non-filing spouses’ names on the agreements. If the filing spouse does not fully repay the jointly held unsecured debt in their Chapter 13 bankruptcy, the creditor may have the right to pursue the non-filing spouse for payment after the balance of the debt has been discharged. This could also be the case for any secured property that is surrendered during the bankruptcy. For example, if the couple jointly held a mortgage on a property that had a deficiency balance after it was auctioned off AND that balance was discharged at the end of the Chapter 13 bankruptcy repayment term, the mortgage company may pursue the non-filing spouse for payment after the bankruptcy case is closed.
On the other hand, if the bankruptcy debtor repays all of his debt in that 3 to 5 year period, the non-filing spouse won’t have a problem; but that is not likely because that rarely happens. Before filing for bankruptcy, married debtors need to candidly discuss the ramifications of bankruptcy with both their non-filing spouse and their bankruptcy attorney. In some cases it may actually be beneficial for a married debtor to file a joint bankruptcy so that they can protect their spouse and by extension the assets of their household.