If you are married and preparing to file for bankruptcy, you may be wondering how it will affect your spouse. While you can file individual bankruptcy, there are still potential consequences for your spouse. Generally, it depends on what joint property you own, whether or not you live in a common-law property state, and which type of bankruptcy you are filing.

As most of the information out there talks about joint property and debts being affected, many individuals think they can just transfer property to their spouse’s name to solve the issue. Unfortunately, it’s not so simple. In most cases, a judge will reverse the transfer, especially if it is apparent that it was done to evade creditors. If you are unsure of what you can and can’t do and what will happen when you file, you can reach out to an experienced bankruptcy attorney for help. They can guide you through the process to work towards the best possible outcome for you and your family.

What Happens to Our Property When I File for Bankruptcy?

Before we jump specifically into what happens when you transfer property, let’s first clarify the ways that property can be affected. In most situations, your bankruptcy will not affect property that is owned separately by your spouse. However, anything jointly owned is not necessarily safe, and how it is treated will depend on whether you live in a common-law or community property state.

Common-Law Property

Indiana is a common law property state, not community property. This means that any property your spouse owns separately in their name usually is not at risk. However, any property owned jointly is considered part of your bankruptcy estate. If you do not have enough exemptions to cover these assets, they can be taken and liquidated in a Chapter 7 bankruptcy. If the property is taken, the trustee responsible for selling the property to pay your creditors will pay your spouse the value of their interest in the property. In Chapter 13 bankruptcy, non-exempt interest in joint property affects the percentage of debt that you pay back to unsecured creditors and there is no liquidation of the property.

What Happens to Property Transfers When I File for Bankruptcy?

Even though common law property states do not typically include your spouse’s separately owned property in the bankruptcy estate, there are some situations when their property can still be affected. Property transfers, for example, are still susceptible to being reversed and taken.

Transfers Can Be Reversed

Large item transfers, such as a car, a house, a sizeable financial account, or any other significant property, are at risk of being reversed in a bankruptcy case by a judge. This is because when transfers like this occur, judges know that it is done to avoid the property being taken by creditors. Transfers made right before you file for bankruptcy will seem particularly suspicious, but even transfers made 2 to 4 years previously still have a high chance of being reversed.

Most people do not plan to file for bankruptcy years in advance. However, on the off chance that you do think it might be something you’ll have to do, you can transfer the property four years or more ahead of time, and it may reduce the likelihood of a reversal. In the rare case where a judge still attempts to reverse a transfer made four or more years previously, it may be necessary to work with an attorney to fight the reversal of the property. Even before you make a transfer, speaking with an attorney is wise. These situations are very complex, and you can easily lose your property entirely if you are not careful.

What About Non-Traditional Transfers?

Non-traditional transfers are situations that might not seem like a blatant transfer of ownership on an asset but may still be considered a transfer and reversed in the case of bankruptcy. For example, if you and your spouse receive joint-funds but invest in a property your spouse owns separately, a judge might still view that as a transfer. Or, perhaps you sell a property that was owned jointly and then buy a new property in your spouse’s name only—that can be viewed as a transfer as well. Even if these “transfers” were done without the intention of evading creditors and were decisions made before you were even considering bankruptcy, they might still be seen as assets and included in the bankruptcy estate.

How Sawin & Shea LLC Can Help

Filing for bankruptcy is a stressful and challenging process. We understand how devastating losing property to creditors can be in these cases. At Sawin & Shea, we believe in providing compassionate and understanding representation to all of our clients and are determined to help you achieve the best possible outcome. Our attorneys specialize in bankruptcy cases and are here to help you through the process every step of the way.

Contact us at 317-759-1483 or send us an email for a free consultation today!