When money troubles hit your marriage, you’re probably wondering whether you and your spouse should file bankruptcy together or go it alone. It’s one of the most important decisions you’ll make during this difficult time, and the answer isn’t always obvious.
Many couples assume they have to file together, but that’s not true. In Maryland, married couples can choose to file jointly as one unit or separately as individuals. Each approach has distinct advantages and drawbacks that could affect your financial future for years to come.
The right choice depends on several factors: who owes what debts, how your property is titled, your individual incomes, and what you hope to accomplish through bankruptcy. Let’s break down everything you need to know to make the best decision for your family.
What Does Filing Together Actually Mean?
When you file a joint bankruptcy case, you and your spouse become co-debtors in the same proceeding. You’ll share one bankruptcy estate, work with the same trustee, and move through the process together toward the same goal: getting rid of your debts and protecting your assets.
This means preparing just one set of bankruptcy paperwork that combines both of your financial lives. Your assets, debts, income, and expenses all get listed together. The trustee treats you as a single financial unit, and any decisions about your property or debt relief affect both of you equally.
One major advantage of filing together is that you can each claim a full set of exemptions for most types of property. This often means you can protect more of your belongings from creditors than you could if just one of you filed alone.
When Should You Consider Filing Separately?
Sometimes filing separate cases makes more sense, especially when only one spouse has serious debt problems while the other has maintained good credit. If your spouse has a clean credit report and you’re the one drowning in debt, separate filing protects their credit rating and financial standing.
Separate filing also works well when one spouse has business debts or other obligations that don’t involve the other spouse. Why drag both of you through bankruptcy if only one person’s debts are causing the problem?
Another compelling reason to file separately involves protecting your home. If you own property together as “tenants by the entirety” (a special form of ownership available only to married couples), that property gets powerful protection when only one spouse files bankruptcy. We’ll talk more about this important protection later.
You might also want to file separately if you’re having marital problems or disagree about how to handle your finances. Sometimes couples going through divorce proceedings find separate bankruptcy cases work better for their individual situations.
How Maryland’s Special Property Rules Can Help You
Maryland recognizes something called “tenancy by the entirety” – a unique way for married couples to own property together. Most married couples in Maryland own their homes this way, though many don’t realize it.
Here’s why this matters: property owned as tenants by the entirety gets special protection from creditors. If only one spouse has debt problems and files bankruptcy, creditors generally can’t touch property owned this way. The debt belongs to just one spouse, but the property belongs to both spouses in a way that shields it from individual creditors.
This protection can be huge if you have significant equity in your home. Let’s say you owe $200,000 on a house worth $350,000, giving you $150,000 in equity. If only the spouse with debt problems files bankruptcy, that entire $150,000 might be protected through tenancy by the entirety rules.
But here’s the catch: if you file jointly, you might lose this protection because both spouses become debtors in the same case. This is one reason why some Maryland couples choose separate filing even when they could file together.
What Property Can You Keep in Maryland Bankruptcy?
Maryland has its own set of rules about what property you can keep when you file bankruptcy, called “exemptions.” Unlike some states, Maryland doesn’t let you choose federal bankruptcy exemptions – you have to use Maryland’s state exemptions found in Maryland Code, Courts and Judicial Proceedings Section 11-504.
In Maryland, homeowners can protect up to $27,900 in equity in their primary residence when filing for bankruptcy. This protection applies to various types of owner-occupied homes, including houses, condominiums, co-ops, and permanently affixed manufactured homes. If you’re married and filing jointly, the exemption cannot be doubled—you’re limited to a total of $27,900, not $27,900 per person.
For other types of property, married couples filing jointly can often each claim full exemptions. This includes:
- Personal property like furniture, clothing, and household goods
- Tools you need for work (up to $5,000)
- Retirement accounts and pensions
- Insurance benefits and disability payments
- A modest amount of cash or bank account funds
The ability to double most exemptions (except the homestead exemption) often gives married couples better protection when they file together rather than separately.
Chapter 7 vs. Chapter 13: How Your Choice Affects Filing Strategy
The type of bankruptcy you choose also influences whether you should file together or separately.
Chapter 7 bankruptcy wipes out most of your unsecured debts (like credit cards and medical bills) in about three to four months. For Chapter 7, joint filing often makes sense when both spouses have significant debt and limited income. Since the court looks at your total household income regardless of who files, having both spouses file together can provide more complete debt relief without much additional cost.
Chapter 13 bankruptcy involves a three-to-five-year repayment plan that lets you catch up on secured debts like your mortgage. Chapter 13 cases present different considerations for married couples. If you have joint debts, the non-filing spouse gets protection from creditors through something called the “codebtor stay.” This protection can make separate filing attractive – you protect one spouse’s credit while still dealing with joint debts through the other spouse’s repayment plan.
Who Is Responsible for Joint and Individual Debts
The types of debts you have play a huge role in your filing decision.
Joint debts make both spouses legally responsible for payment, even if only one spouse actually used the credit card or signed the loan papers. Most mortgages, car loans, and credit cards signed by both spouses create joint responsibility.
When you file jointly, both spouses can wipe out their responsibility for joint debts. But if you file separately, only the filing spouse gets relief from joint debts. The non-filing spouse remains responsible for the full amount, which might not solve your family’s debt problems.
Individual debts only affect the spouse who incurred them. If most of your debt problems involve just one spouse’s individual obligations, separate filing might protect the other spouse’s credit and financial standing while still providing effective debt relief where it’s needed.
What the Court Looks for in Your Income and Expenses
Here’s something that surprises many couples: Maryland bankruptcy courts consider your total household income when determining whether you qualify for Chapter 7 bankruptcy, regardless of which spouse files. Even if only one spouse files, both spouses’ income counts toward the “means test” calculation that determines your eligibility.
This can work for you or against you. If your household income is too high, you might not qualify for Chapter 7 even with separate filing. On the other hand, if your household expenses are high relative to your income, joint filing might help you qualify for Chapter 7 by showing all your family’s financial obligations.
For Chapter 13 cases, things work differently. The filing spouse’s income determines the required payment amount for the repayment plan. If only one spouse has significant income, having just that spouse file might result in a more manageable payment plan than joint filing would require.
Tax Considerations You Should Know About
Bankruptcy can affect your taxes, particularly regarding discharged debt. Generally, debt that gets wiped out in bankruptcy doesn’t count as taxable income to you, but there are exceptions and complications.
Joint filing typically simplifies your tax situation because both spouses receive the same treatment for discharged debts. If you file separately, you’ll need to coordinate your tax planning to make sure debt discharge doesn’t create unexpected tax bills for either spouse.
If you need to transfer property between spouses during the bankruptcy process, joint filing usually avoids tax complications because both spouses are part of the same bankruptcy estate. Separate filing might require more careful planning to avoid inadvertent tax consequences.
What About the Costs?
Filing jointly typically costs less than filing two separate cases. Court filing fees, attorney fees, and other costs are generally lower for joint cases because you’re preparing one set of documents and dealing with one proceeding instead of two.
However, cost shouldn’t be your only consideration. If separate filing allows you to protect significant assets or achieve better debt relief, the additional expense might be worth it. Some couples benefit from having one spouse file first, then having the other spouse file separately later if needed. This approach provides flexibility while managing costs over time.
Timing Can Make a Difference
When you file bankruptcy can affect whether joint or separate filing makes more sense. If you’re facing immediate foreclosure or wage garnishment, the spouse with the most urgent need might file first while the other spouse waits.
Maryland has special rules about claiming homestead exemptions that can affect your timing. According to Maryland Code Section 11-504(f)(2), you cannot claim the homestead exemption on property if you or certain family members have successfully claimed the exemption on the same property within 8 years prior to filing. This means family members can’t claim homestead exemptions on the same property within eight years of each other.
If you’re considering divorce, timing becomes even more important. Filing jointly before divorce might provide better debt relief, while filing separately after divorce might offer more protection for individual assets.
Making the Right Decision for Your Family
Choosing between joint and separate bankruptcy filing isn’t a one-size-fits-all decision. You need to carefully consider your specific circumstances, including who owes which debts, how your property is titled, your income and expenses, and your long-term financial goals.
Many Maryland couples do benefit from joint filing because it provides comprehensive debt relief, costs less, and allows both spouses to start fresh together. But separate filing can be the better choice when you need to protect one spouse’s credit, take advantage of tenancy by the entirety protection, or deal with conflicts of interest.
Remember, your decision isn’t always permanent. Some couples start with joint filing and later separate their cases if conflicts arise. Others begin with separate filing and later coordinate their cases for better results.
Think about not just immediate debt relief, but also long-term financial rebuilding and the impact on your marriage. The goal is to emerge from bankruptcy in the strongest possible position as a family.
Key Takeaways
- Joint filing treats you as one financial unit, often saving money and providing comprehensive debt relief for both spouses
- Separate filing can protect one spouse’s credit and take advantage of Maryland’s tenancy by the entirety property protection
- Maryland’s exemption laws allow married couples filing jointly to each claim full exemptions for most categories of personal property
- Married couples cannot double the homestead exemption, which is limited to $27,900 total
- Property owned as tenants by the entirety in Maryland gets special protection when only one spouse files bankruptcy
- Joint debts affect both spouses regardless of who files, while individual debts only affect the spouse who incurred them
- Chapter 7 and Chapter 13 cases present different considerations for joint versus separate filing
- The decision isn’t always permanent and can sometimes be changed during the bankruptcy process
Frequently Asked Questions
Can we file jointly even if we have completely different types of debt? Yes, married couples can file jointly regardless of whether their debts are joint or individual. Joint filing allows both spouses to discharge their respective debts in one proceeding, which often provides the most comprehensive relief.
Will filing separately affect our jointly owned property? It depends on how the property is titled. Property owned as tenants by the entirety gets special protection when only one spouse files bankruptcy. However, other jointly owned property might be affected depending on your specific circumstances and the type of ownership.
Do we both have to file the same type of bankruptcy? When filing jointly, both spouses must file the same chapter of bankruptcy. However, if you file separately, each spouse can choose the chapter that best fits their individual situation.
Can we change from joint to separate filing after we start the process? Yes, in some cases joint bankruptcy cases can be “severed” into separate cases if conflicts of interest arise or if it becomes advantageous to proceed separately. However, this decision requires court approval and proper legal procedures.
How does joint filing affect both of our credit scores? Both spouses’ credit reports will show the bankruptcy filing. However, both spouses can begin rebuilding their credit immediately after receiving their discharge, and many couples find their credit scores improve relatively quickly after bankruptcy.
What happens to our joint debts if only one of us files? The filing spouse’s legal responsibility for joint debts gets discharged, but the non-filing spouse remains fully responsible for the entire amount of joint debts. This is why joint filing often makes more sense when you have significant joint debts.
Are there any debts that won’t be discharged no matter how we file? Yes, certain debts typically cannot be discharged in bankruptcy regardless of your filing method. These include most recent tax obligations, student loans, domestic support obligations like child support and alimony, and debts incurred through fraud or intentional wrongdoing.
Can we file jointly if we’re separated but not yet divorced? Yes, married couples can file jointly as long as they’re legally married, even if they’re separated or living apart. However, practical considerations about cooperation and shared financial information might make separate filing more appropriate in some separation situations.
Make the Right Bankruptcy Move for Your Maryland Family
Choosing between joint and separate bankruptcy filing requires careful analysis of your unique situation. The decision affects not just your immediate debt relief, but your long-term financial recovery and your family’s future.
At The Grafton Firm, we help Maryland couples work through these complex decisions every day. We’ll review your specific debts, assets, income, and goals to help you choose the filing strategy that provides the most effective relief while protecting your most important assets.
Don’t let financial stress continue to harm your marriage and your future. Contact The Grafton Firm today to schedule a free consultation where we can discuss your options and help you take the first step toward financial freedom. Our experienced team will guide you through every step of the process and help you build a stronger financial foundation for your family’s future.