Does Filing For Bankruptcy Affect My Spouse If Our Home Is Owned Jointly?

This very much depends on your specific circumstances. First it must be determined by how the home is held jointly, as there are several ways to legally do this. Most commonly, the home will either be held in “joint tenancies”, which simply means that each of you have a one-half interest in the home, or in “tenancies by the entireties”, which means that you as a legally married couple hold a 100% interest in the property. This may sound the same, but it is not. A home held in joint tenancies is vulnerable when one party has debt issues. Judgment liens can attach to that person’s one-half interest in the home, where this is not allowed when the property is held by tenancy by the entireties.

More importantly in a bankruptcy case, a home held in joint tenancy is more vulnerable to liquidation in a Chapter 7 case. If, after determining the net equity in the property, there is positive equity, that equity is deemed to be held by each person at 50%. The bankruptcy trustee can liquidate the home in order to recover the bankruptcy party’s 50% interest in the equity for distribution to creditors. The non-filing spouse’s equity is protected, but the trustee can sell the home without their consent and pay the non-filing spouse their share from the proceeds of the sale. In essence, the house can be sold out from under the non-filing spouse without their consent. If the home is held by tenancy by the entireties, then generally the trustee is not able to do this.

This also comes into play in Chapter 13 cases when determining the amount that has to be paid to unsecured creditors. In a case where the property is held in joint tenancies, the filing spouse’s equity is included in the calculation to determine how much debt has to be paid back. This is not the case when the property is held in tenancy by the entireties.

It is worth noting that if the non-filing spouse is also liable on any mortgages or debts against the property, their credit can be affected by the filing of the bankruptcy, even though they are not a party. Their credit report will reflect that a co-debtor on the debt reported filed for bankruptcy protection and there will be a negative impact on the non-filing spouses credit score. This is generally not a significant impact, but it should be considered.

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