- There are several types of personal bankruptcy filing but the two most common are Chapter 7 and Chapter 13. Under Chapter 7, a debtor relinquishes any remaining assets to be distributed among the creditors. The debtor immediately emerges from the filing with a clean slate. A Chapter 13 filing requires the debtors to make payment arrangements with the creditor and the bankruptcy stays active until all payments are made. In Chapter 7, all individual assets become part of the bankruptcy estate. In Chapter 13, some joint assets may be exempt.
- The spouse who does not file bankruptcy may experience repercussions through his credit report. Although the report will show that it was not the spouse who filed, it may mention the spousal filing, which could affect the ability to garner new credit. Jointly-held debts may also be difficult to navigate. In some situations, such as joint income tax debt owing, a bankruptcy filing by one spouse simply shifts the debt responsibility over to the non-filing spouse rather than erasing it. An experienced bankruptcy lawyer can advise on the likely impact that filing will have on a debtor's spouse.
- In a Chapter 7 filing, all solely held assets of the filer will form part of the bankruptcy estate. Chapter 7 is most often filed by debtors with very few assets and no ongoing income source. In a Chapter 13 filing, a debtor can exempt some of his assets if they will contribute to producing income in the future to pay the creditors. Filers can often keep their cars and homes while they pay their creditors.
- The impact on the non-filing spouse can be serious if the non-filing and filing spouse have jointly held assets. How these assets are treated in a bankruptcy depends on which state the filer lives in. In many community property states, all joint assets may become part of the bankruptcy estate and the non-filing spouse loses his share of the assets. In other states, the filer may be able to exempt jointly held assets to minimize the impact on the spouse's financial affairs.
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