In some instances, it makes sense for both spouses to file for bankruptcy together. In other cases, however, it’s more beneficial for the couple that only one spouse files for Chapter 7 or Chapter 13 bankruptcy.
An experienced bankruptcy attorney can help a couple determine if it’s best for only one spouse to file or if they should file jointly. Many factors determine how the bankruptcy filing should proceed to offer the best financial outcome.
Community property versus separate property
Since New Mexico is a community property state, the treatment of joint and separate assets is different here, even though bankruptcy protection is offered under a federal law. Community assets (those owned together with your spouse) fare differently than separate property in a bankruptcy proceeding if only one spouse files. Non-exempt property might be liquidated to pay creditors in a Chapter 7 proceeding, even if it is owned jointly.
Separate debts remain separate even in a community property state. For example, if each spouse purchased a car in his/her own name during the marriage, each is only responsible for a single vehicle debt. That remains so during the bankruptcy proceeding as well. The same goes of debts incurred prior to the marriage. They remain the sole legal responsibility of whoever incurred them. Car loans or homes purchased before the marriage remain separate unless specifically refinanced or retitled to include both parties.
Joint debts are dischargeable only for the party who actually files for bankruptcy. If both spouses have a joint credit card, for example, only the filing spouse’s obligation to pay is relievable by the bankruptcy filing. The other spouse is still legally liable for the entirety of the debt. The non-filing spouse does enjoy the protections of the automatic stay while the bankruptcy is ongoing, however. Furthermore, community funds acquired after the bankruptcy cannot generally be used to satisfy a judgment for a joint debt in a community property state.