Spouses and Joint Debts
Your cosigner's liability for the debt is not effected by your discharge.
Cosigners are almost always joint and severally liable. This means the creditor can collect the entire debt from any person who has signed for the debt. If one of the signers receives a discharge, the creditor will still be able to collect the entire debt (plus interest, attorneys fees and collection charges, if the contract provides) from the other signers. [9-98]
There has been a firm of collection attorneys aggressively pursuing me for a debt that was given to my ex-husband according to the terms of our divorce. Why are they coming after me when they know it's his debt?
The division of debt in the divorce decree affects only you and your husband. If your husband does not pay the bill, the creditor may come after you for the entire debt. You may have an action against your husband for his violation of the court order, but you may be no more successful in collecting from him may be no better than the creditor who has apparently decided that you are a better target. [8-26-99]
If you file Chapter 13, a co-debtor stay automatically goes into effect prohibiting creditors from collecting consumer debt from co-debtors. In order to maintain this protection, your Chapter 13 plan must provide for payment of the entire debt and interest. [9-98]
My husband and I divorced nearly a year ago and he was supposed to take over the credit cards part of the divorce agreement but he later found out that the bills were too much. I am unable to pay back the loans and credit cards. I have tried several times during the year to get him to go for bankruptcy but he will not do it. Can I do it and settle the debts for the final time?
Yes, you can file and discharge (or cancel) your debt under either Chapter 7 or Chapter 13 bankruptcy. However, if you and your husband are divorced, you cannot file bankruptcy together--each of you would have to file separately. If you ex-husband files, his debt would be eliminated, but creditors would still be able to pursue collection against you. You, of course, could file and seek to discharge your liability for those debts. [2-21-00]
Bankruptcy filed by one spouse can affect the other spouse if there are community debts or community assets. In some states (Arizona is one), assets earned by either party during marriage are property of the marital community. For example, the wages which you and your wife earn are community property, as are anything which is purchased by the community. Similarly, debt which is incurred by either of you during marriage is generally the debt of the community.
If only one spouse files for protection under bankruptcy, the bankrupt estate may include community property. [11 U.S.C.§541(a)(2)] However this community property can only be used to pay community debts--not any separate debt which the filing spouse may have. [11 U.S.C.§726(C)(2)(a)] The non-filing spouse will also benefit by the bankruptcy since the discharge of debts includes community claims and prohibits creditors from proceeding against community property acquired post-petition, even as against non-debtor spouse. [11 U.S.C.§524(a)(3); In re Strickland, 153 B.R. 909 (Bankr.D.N.M., May 4, 1993).] [2-23-00]
In general, your filing bankruptcy will not effect your spouse's property. In Chapter 7, the Trustee will be able to take property which you own if it is not exempt. The Trustee cannot take property of your spouse even if it is not exempt.
Unfortunately, the answer is not so easy if you own propety with someone else, including your spouse. Whether the property may take only your interest in the property, or all of the peroperty depends on the nature of your ownership in it.
The most common property owned jointly or as community property is a home. Since Arizona has a relatively generous homestead exemption of $100,000 [$150,000 after 8-04], we do not often have to deal with the problem of the Trustee seeking to take a home.
You should be able to keep your SEP-IRA & 401K plans. In Arizona, IRAs are exempt--except for deposits made within 6 months before filing--and ERISA plans (which 401k and other retirement plans would ordinarily be) are also protected--if the documents that created them contain properly drafted spendthrift protection. More information regarding ERISA plans can be found in our notes to ARS § 33-1126.
In Arizona, the cash value in your life insurance is exempt up to $20,000, if you name the proper beneficiaries and meet the other requirements to claim the exemption. This exemption is described in our listing of Property Exempt in Arizona.
This page was last revised: 09/18/04