When you got married, many of your legal and financial interests became closely intertwined with those of your spouse, including assets and debts. Whether you owed a debt before marriage as an individual or incurred it jointly with your spouse, the matter does affect both of you. Therefore, if you are struggling with debt and unable to keep up with monthly bills, you may wonder if you can file for bankruptcy in Arizona if you are married.
Fortunately, bankruptcy is an option for a person who is married, and there are different strategies to help you meet your goals. For one, you have the choice of filing as an individual or jointly with your spouse. Plus, you may decide to work out debt through two different types of bankruptcy. Chapter 7 or Chapter 13 may be suitable, depending on your circumstances.
While having multiple options can be an advantage, it can also be a challenge to choose which bankruptcy solution is the best fit. You are not just making decisions for yourself. Your spouse must be included either directly as a party to the proceedings or indirectly through your bankruptcy case. It is wise to consult with an Arizona bankruptcy attorney for details, but some information on bankruptcy for married couples is useful.
Classifying Debts in Bankruptcy
To better understand how Chapter 7 and Chapter 13 work, it is important first to clarify the terminology that is used in connection with bankruptcy and married couples. You should be familiar with some of the crucial definitions:
- Secured debt is debt in which the lender holds an interest in the property used as collateral to secure the loan. The most common secured loans in bankruptcy are the mortgage on your home and an auto loan, in which your vehicle acts as collateral.
- Unsecured debts are those which do not have any collateral to represent the creditor’s interests. Examples include credit cards, medical debt, and personal loans.
- As a married couple, you may have joint debts for which you are both accountable. If you take out a credit card or loan in your name together, it is a joint debt.
- Individual debts are those that you incurred on your own, often before you got married. You might also have separate credit accounts or debts in which your spouse would not be included.
Summary of Chapter 7 Bankruptcy Laws in Arizona
The most well-known type of bankruptcy is Chapter 7, in which your qualifying debts are eliminated through the process. You will have to qualify under bankruptcy rules, and you are automatically eligible if your earnings fall below the state median income amount. There is a second opportunity to qualify through the Means Test. You may be eligible if your income meets the criteria after a review of your monthly bills. The point of strict eligibility rules is to ensure that debtors who need the remedy will qualify since wiping out debt does harm creditors.
Chapter 7 bankruptcy rules make an attempt to pay what you owe to creditors, and they do so by granting certain powers to the bankruptcy trustee overseeing your case. The trustee can liquidate your assets to satisfy your debts, meaning your real estate and personal property could be sold. The proceeds of the sale would go towards your debt. However, in most situations, Chapter 7 bankruptcies are no-asset cases. The bankruptcy trustee will often decide not to sell any items that would take significant effort or would not bring in sufficient profit.
Basics on Chapter 13 Bankruptcy
The rules under Chapter 13 are similar to Chapter 7 in that your eligible debts are discharged at the end of the court case. Plus, the laws aim to satisfy your debt to creditors. However, there are significant differences in terms of these outcomes.
- To pay back your debt to creditors, you will enter into a debt repayment plan that is the core of a Chapter 13 case. The amount you pay will be one you can afford because your debts are combined and reorganized into a single monthly payment.
- There is one essential criterion you must meet to file for Chapter 13, and it relates to your employment. You must have a job and source of income to stick with your obligations under the debt repayment plan.
- Depending on your circumstances, your debt repayment plan will last 3 to 5 years.
- In total, you will end up paying less than the total amount you owe creditors. Many debtors will only reimburse a percentage of what is due for the underlying balance and other charges.
Pros and Cons of Joint Bankruptcy in Arizona
Keeping this information about Chapter 7 and Chapter 13 in mind, there are some advantages and disadvantages of filing together as a married couple. From the standpoint of filing and legal fees, you save money by submitting one bankruptcy petition. However, one of the most impactful pros of filing a joint bankruptcy case deals with exemptions. In Chapter 7, you can use exemptions to protect property, including your home, vehicle, and personal items. When you are married, some exemptions can be doubled to increase the value of what you can protect.
In addition, filing jointly could help you qualify for Chapter 7 as a couple. This would apply in cases where the spouse who seeks to eliminate debt has an income that exceeds designated thresholds. When adding the other spouse, the couple may be eligible under the state median income level and the Means Test. Still, you must remember one of the major downsides of bankruptcy. Both spouses will have issues with credit when they file a joint bankruptcy petition.
Reasons to Consider Individual Bankruptcy
One benefit to filing on your own is the converse to filing jointly, namely your income. If you would not qualify to file Chapter 7 when you file together with your spouse, you could consider filing individually. You might meet one of the income tests, enabling you to discharge debt under Chapter 7.
Other benefits to filing bankruptcy as an individual include:
- Your spouse does not experience the hit to their credit by filing alone. A member of the couple will still have access to greater financial opportunities.
- You might need to file as an individual if your spouse does not work or acts as a stay-at-home parent.
- When you file Chapter 7 or Chapter 13 individually, you have control over decision-making. Spouses can disagree on strategy, so you want to do what is best for your situation.
Legal Help with Bankruptcy Tasks
The main priority at the outset is determining whether a joint or individual filing is most appropriate, and you can count on your Arizona bankruptcy lawyer to counsel you on additional pros and cons. Another area where legal advice is essential is determining whether you should file Chapter 7 or Chapter 13. Your attorney will explain the laws and guide you in making responsible choices.
In addition, it is critical to get assistance with such tasks as:
- Coordinating the credit counseling session that you and/or your spouse must take within six months before you file for bankruptcy;
- Gathering, reviewing, and organizing your financial documents on joint and individual assets, income, and debts;
- Preparing your bankruptcy petition for Chapter 7 or Chapter 13;
- Helping you develop your debt repayment plan for Chapter 13;
- Attending the meeting of creditors with you, in which creditors will ask questions about your finances, petition, and debt repayment plan; and,
- Completing the bankruptcy process and obtaining the final discharge order.
Debunking Myths About Bankruptcy
Some people are confused about whether you can file for bankruptcy if you are married in Arizona, and this summary dispels any myths. Spouses can file Chapter 7 or Chapter 13 together or separately, depending on what options and strategies provide the best results. You want to pursue the solution that will maximize your potential and opportunities after bankruptcy while minimizing the consequences to both spouses.
It is also worthwhile to review some additional information debunking myths about bankruptcy:
- There is the misconception that bankruptcy will destroy your credit, with Chapter 7 and Chapter 13 cases remaining on your report for 10 and 7 years, respectively. However, allowing your debt situation to continue to spiral out of control could have an even bigger impact on your credit. It could take years for you to get on top of debt.
- Exemptions offer protection against liquidation in Chapter 7, but it is not true that you protect the entire asset. With your home and vehicles, you only protect the equity you have built.
- Not all debts can be discharged. You cannot wipe out alimony, child support, some types of taxes, and other designated debts.
- It is a myth that you must file Chapter 7 if you qualify through your income. You can choose to file Chapter 13, which is a preferred option for filers who have assets they do not want at risk of liquidation. The bankruptcy trustee in a Chapter 13 case does not have the power to sell your assets.
Discuss Options with a Bankruptcy Lawyer To File for Bankruptcy
This overview provides useful information on whether you can file for bankruptcy if you are married, but you certainly have many other questions about the process. For answers and details, please contact DebtBusters to set up a free consultation with a member of our team. You can reach our offices in Scottsdale, AZ, by calling (866) 223-4395 or visiting our website. After learning more about your situation and goals, an Arizona bankruptcy attorney will advise you on how these cases work.
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