Pennsylvania Bankruptcy Law: What Happens to Joint Debts?

Pennsylvania Bankruptcy Law can be complex, especially for couples handling joint debts. When one partner files for bankruptcy, it’s crucial to understand the implications for shared financial obligations. This article aims to clarify what happens to joint debts in Pennsylvania when one spouse declares bankruptcy.

Bankruptcy is a legal process that allows individuals or businesses to eliminate or repay their debts under the protection of the federal bankruptcy court. In Pennsylvania, like in other states, there are different types of bankruptcy filings, with Chapter 7 and Chapter 13 being the most common for individuals. Each type of bankruptcy has unique impacts on joint debts.

Chapter 7 Bankruptcy and Joint Debts

In a Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” a trustee may sell non-exempt assets to pay off creditors. However, the discharge granted to the debtor affects only the filing spouse. For joint debts, the non-filing spouse remains fully responsible for the debt after the bankruptcy process is complete.

For instance, if both partners have a joint credit card debt and one files for Chapter 7 bankruptcy, the creditor can still pursue the non-filing spouse for the entire amount owed. This leaves the non-filing spouse in a precarious position, as they may be compelled to make payments on a debt that has been discharged for their partner.

Chapter 13 Bankruptcy and Joint Debts

In contrast, Chapter 13 bankruptcy involves creating a repayment plan that lasts three to five years. This allows individuals to keep their property while making regular payments to creditors based on their income and expenses. For couples who share debts, Chapter 13 can offer more favorable treatment for joint debts.

In this scenario, if one spouse files for Chapter 13, the repayment plan may include provisions for joint debts. This could potentially protect the non-filing spouse from future collection actions regarding those debts, depending on how the plan is structured. The filing spouse can also negotiate with creditors to settle joint debts for less than the total amount owed.

Effects on Credit Reports

Another factor to consider is how bankruptcy impacts credit reports. When one spouse files for bankruptcy, it will appear on their credit report for up to ten years. The non-filing spouse's credit may also be indirectly affected, especially if joint debts are in default. Creditors may report late payments or defaults that could damage both partners' credit scores, even if only one spouse files for bankruptcy.

Protection for Non-Filing Spouses

It’s essential for non-filing spouses to understand their rights and options after their partner files for bankruptcy. A non-filing spouse can negotiate with creditors directly or may want to seek legal counsel to better understand their obligations and potential defenses against collection actions.

Additionally, non-filing spouses may consider strategies to minimize risk, such as refinancing joint debts solely in the non-filing spouse's name before the bankruptcy is filed. This can help ensure that the non-filing spouse is solely responsible for the debt post-bankruptcy, thereby providing a degree of financial protection.

Conclusion

Navigating Pennsylvania bankruptcy law concerning joint debts can be challenging. It is crucial for couples to communicate openly about their finances and seek professional advice. Understanding how bankruptcy affects shared debts can help both partners make informed decisions that may protect their financial futures.

For personalized guidance, it’s recommended to consult with a qualified bankruptcy attorney who can provide tailored advice based on individual circumstances and help navigate the complexities of joint debts in Pennsylvania.