• 11
  • February
    2011

Many married couples who find themselves teetering on the brink of foreclosure feel like they have no remaining options. While a foreclosure would rid the couple of mortgage debt, it will also cause them to lose the family home, a devastating conclusion in itself. And while a Chapter 13 bankruptcy could save the home, it will also harm the couple's credit, which is likely to impair their financial future. Yet there is one option that many couples do not know to consider. If one spouse files for Chapter 13 bankruptcy in his or her own name, it can place an immediate stay on foreclosure proceedings, while also maintaining the credit rating of the other spouse.

After filing for Chapter 13 bankruptcy, a couple will undergo a court-monitored financial reorganization. This means that the filer will set up a three-to-five year repayment plan with creditors based on income and debts. As long as the filer makes all payments according to the terms laid out by the court, he or she will be allowed to keep the home out of foreclosure.

There are many factors to consider before resorting to this somewhat drastic measure. First, a couple should examine Tennessee's community property laws. While such a law would not place an individual bankruptcy out of the question, it may make it more difficult. A bankruptcy attorney can help a couple sort out this complicated legal issue.

If the non-filing spouse has debts in his name only, he will be held responsible for all normal payments during the bankruptcy. This can be difficult in a Chapter 13 bankruptcy because the court usually requires the filer to put the majority of their income toward the repayment plan, leaving little extra to pay other debts. In addition, if there are joint debts, creditors may go after the non-filing spouse during or after bankruptcy. While there is a legal remedy for this, it is a costly one, and a family that is already stretched thin might not be able to fund it.

Source: Bankrate.com, "Wife's Chapter 13 could save couple's home", Justin Harelik, 19 January 2011