There are times when couples just don’t want to “be in it together”. When spouses come to see me about filing bankruptcy in Indiana, the situation often is that either the husband or the wife has certain debts that are only in that spouse’s name. These debts may go back to a time before the couple was married, or the debts may have to do with a small business one spouse owns and for which he or she signed personal loan guarantees. The one who wants to file bankruptcy is often very firm about one thing – “I don’t want to get my spouse involved”. “It’s not his/her fault.” “It’s not his/her debt!” So far, so good.

As I explained in Together For Debtor Or Worse, co-signers remain “on the hook” to repay debts even if the main signer is the only one filing bankruptcy. But what if the wife never co-signed loans for her husband, or the husband for his wife? The non-filing spouse doesn’t need to be involved at all in the bankruptcy, right? Not exactly (and this is the concept that’s so difficult for many of my married Indiana bankruptcy clients to grasp). A bankruptcy can always be filed by one spouse without the other. However, as part of the process of qualifying to file bankruptcy, the bankruptcy court needs to evaluate the debtor’s ability to repay his or her debts. In order to do that, the court requires that the non-filing spouse’s income be included in the bankruptcy paperwork. Not the social security number of the spouse, not even his or her name needs to be included, only the income. That’s because the combined income that couple has will be part of the determination of whether a Chapter 7 bankruptcy can be filed, or whether the debtor is eligible to file a Chapter 13 bankruptcy. I spend a lot of time explaining that the bankruptcy will not affect the non-filing spouse’s credit record.

The other money issue that needs to come up in any discussions I have with the couple is their relatives. Bankruptcy law has something to say about loans repaid to relatives. If any repayment was made to a relative within twelve months of filing bankruptcy, the bankruptcy trustee can actually sue that relative to recover the property or money! (I keep repeating myself in these blogs about seeking legal advice early on, but it’s true – but when clients seek my advice at the first signs of financial trouble, it’s easier for me to help them avoid expensive mistakes – such as repaying debt to relatives!)

After almost twenty-five years of practicing bankruptcy law in Indiana, helping thousands and thousands of couples, I’ve found that husbands try to protect wives from having to go through bankruptcy, and wives, in turn, try to protect their husbands. Fortunately, in cases where the debt really belongs to only one of them, they can do that. But, on the income form for the bankruptcy means test, “together for better or worse” is not only a vow, it’s a legal requirement!