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In this article, you will learn:

  • How property debt is affected by bankruptcy
  • How filing with a spouse can affect property debt

What happens to the debts and property depends on whether they are individual debts and property or joint debts and property. For individual debts and property, if you file a Chapter 7, your debts will be discharged, unless they are somehow subject to non-dischargeability, which is a small list of various items. Your property will be a part of the estate in a Chapter 7 bankruptcy. If there is sufficient equity in that property of the estate, the trustee may liquidate and sell that property and use that equity to repay creditors.

In Chapter 13, your debts again will be discharged to the extent they are not paid as a part of your plan. You will create a plan which will pay out a certain amount to your creditors. That plan should reaffirm any secured debts for any of your property or assets you wish to keep. Those debts will be paid, as usual, going through bankruptcy. But in a Chapter 13 you may be able to potentially discharge any portion of that debt which is classified as “unsecured debt.” In other words, if we are in a Chapter 13 and you have an asset worth $5,000 and you owe $10,000 on that asset. It may be possible to discharge $5,000 of that debt because that debt is “unsecured” (since the asset is only worth $5,000, only $5,000 of the $10,000 in debt is “secured” and the rest is “unsecured”).

In a joint bankruptcy with your spouse, this will be a similar process, and your jointly owned property will go through that same process. In contrast, if you are an individual and you have jointly owned property, then if you go through an individual bankruptcy, the trustee may sell that jointly owned property. Upon a sale, the trustee would be required to pay your non-debtor spouse that spouse’s share of the proceeds. But the trustee would still have the option to sell those assets. For those reasons, it is vital to discuss with a bankruptcy attorney whether an individual or joint bankruptcy is the best route for a couple when talking about bankruptcy.

Is It Ideal To File For A Bankruptcy Before I Am Married Or After I Am Married?

Just for simplicity’s sake, it would be easier to file before you are married because then you can handle all your individual debts. You do not have to worry about your spouse’s income or assets, and you could go into the marriage with a clean slate in terms of your debts and liabilities. However, there may be situations where it might be beneficial to be married. For example, potentially, the spouse might add other children to the equation, and it adds in another mouth to feed, and if the spouse is not working outside the home, it could make it easier to qualify for Chapter 7. Of course, every situation will be fact-specific. Still, in general, it is going to be easier before you are married for clarity and simplicity. However, the marriage could create some benefits for you, and it is a matter of talking to your bankruptcy attorney and figuring out what the specific facts and circumstances call for in your case.

Should I Contact A Bankruptcy Attorney Now If I Suspect That I Will Need To File Bankruptcy Next Year?

It is nearly always better to contact a lawyer early in the process so you can put a good plan together for the bankruptcy. It is always better to plan than to simply react.

One thing that I would tell people is to file your income taxes even if you cannot pay the taxes. If you have not filed for several years, get those filings completed and filed. One of the limited exceptions that will hurt a lot of people is that you cannot discharge taxes if you have not filed a return. So, for example, if you filed all your returns up to the current year, but you owe some of those taxes, after a certain amount of time, those taxes become dischargeable. Whereas, if you have not filed your returns, those taxes are never dischargeable.

So, if you have not done filed all your returns in the past, get it done and get it done quickly. Then, if you get it done and you can wait for another year, or maybe more before you file, you are potentially making a lot of those old taxes potentially dischargeable.

For more information on the Impact Of Bankruptcy On Property & Debt, an initial consultation is your next best step. Get the information and legal answers you seek by calling (205) 506-3354 today.

John W. Clark

Call Us Now For A Personalized Case Evaluation
(205) 506-3354