Personal Bankruptcy Types

• The two types of personal bankruptcy under the United States Bankruptcy Code are Chapter 7 and Chapter 13. Under Chapter 7, the bankruptcy estate is liquidated by a bankruptcy trustee to pay off creditors. This includes selling a debtor's house or car if needed. A Chapter 13 bankruptcy acts like a long term-repayment plan ranging anywhere from three to five years in which a bankruptcy trustee is paid a set amount every month to pay off creditors.
  
  

Joint/Married Debtors

• Debtors may file individually or, if they are a married couple, as "joint debtors." Joint debtors are both personally responsible for a bankruptcy case. It is also possible for only one spouse to file for bankruptcy although the other spouse's income may be included as part of the bankruptcy estate.
  
  

Legal Separation During Bankruptcy

• If a couple legally separate during bankruptcy, the bankruptcy estate still remains in effect. However, since the debtors' financial situation may change, the bankruptcy may have to be modified to decrease plan payments or to account for new housing situations. An attorney can file a plan modification with the bankruptcy court.
  
  

Divorce During Bankruptcy

• If joint debtors in a bankruptcy case divorce while their case is ongoing, it is possible to keep the case as-is with joint debtors both listed on the bankruptcy petition. This could be a good option if the bankruptcy is near completion. If only one spouse is listed in the bankruptcy, it may be a wise decision to consult an attorney to see how any marital debt will be handled by the bankruptcy court.
  
  

Severing Joint Debtor

• It is also possible to "sever" a joint debtor from the bankruptcy case to create two new bankruptcy cases with single debtors. In this instance, a divorce attorney and bankruptcy attorney must work together to make sure all marital debt is split equitably and then applied to each respective bankruptcy case.