Almost all consumer bankruptcies are voluntary. Involuntary ones are mostly for businesses. Joint cases with your spouse save time and money.
Voluntary Bankruptcy Filing
People who need bankruptcy relief usually file voluntarily. This is the overwhelming way that bankruptcy cases are filed.
A voluntary case starts by your filing of a petition at the bankruptcy court. (See Section 301 of the United States Bankruptcy Code.) This is usually done electronically by your bankruptcy lawyer without anyone physically going to the court.
Your voluntary petition states which Chapter under which you are filing. You have to qualify to be a debtor in the Chapter you designate. If you are an individual (instead of a corporation or other business entity) you can file under Chapter 7, 11 or 13. (See our most recent blog post for a description of each of these options.)
Involuntary Bankruptcy Filing
Involuntary bankruptcy cases are rare, and those filing against individuals (instead of businesses) are even rarer. We mention them here mostly to show that they are a possibility.
Involuntary bankruptcies are filed not by the person or business that owes money but rather by its creditors. Creditors push a business into bankruptcy when it is not paying its debts but has assets out of which the creditors could likely get paid. (See Section 303 of the Bankruptcy Code.)
Individual Bankruptcy Filing
Bankruptcy cases can be filed individually or jointly. You can file individually even if you are married.
Joint Bankruptcy Filing
A joint bankruptcy case is filed by a person who qualifies to file under the Chapter being filed, together with that person’s spouse. (See Section 302.)
If you’re married you can save time and money by filing jointly. But again, you’re not required to file jointly. In some situations only one spouse needs to file. Or sometimes one should file now, with the possibility that the other spouse may need to file later. Or, one spouse may need to file under one Chapter and the other under another Chapter.
When filing a joint case, you and your spouse file one joint petition, and one set of all required documents. On the documents you put down all the assets, debts, income, and expense the two of you have.
As for your debts, you include the debts you owe individually and those you owe jointly. All debts that can be discharged (legally written off) are discharged no matter which of you owe them. However, if all or most of the debts are owed by only one spouse, maybe only that spouse needs to file bankruptcy.
As for your assets, each of your separate assets and your joint assets are all part of your joint bankruptcy. In most bankruptcy cases assets are not a problem because you are allowed to use “exemptions” to protect your assets from creditors. But the available exemptions differ state by state. Plus, there’s a federal set of exemptions and a separate set for each state, with only some states allowing you to choose between its set of exemptions and the federal one. Some exemptions allow debtors in joint cases to double the usual exemption amounts and some don’t. You can’t double the exemption amount on a particular asset unless you and your spouse jointly own it.
Individual vs. Joint Filing
Generally, the advantage of filing jointly is saving time and effort, as you address all your debts in one package. But you need to discuss any potential disadvantages carefully with your bankruptcy lawyer. Be especially cautious if one spouse has little or no debt, particularly if that spouse has any substantial assets that would not be fully covered by the applicable exemptions.