Neat Bankruptcy Skill: Severing Spouses

Every time I contemplate severing a joint bankruptcy case, the traditional Anglican wedding service echoes:

Those whom God has joined together, let no one put asunder.

Then I excuse myself, since it was either the attorney or the debtors that elected a joint case, not the Almighty.

And I proceed to make two bankruptcy cases where there appeared before to be only one.

Why divide spouses

Severing a joint case is one of those seldom used, but really handy, bankruptcy skills.

Divorce is most often the driving force. Two people who no longer want to be married may not want the discharge of their debts to be dependent on the other’s contribution to a Chapter 13 plan.

I used it once where information about one spouse’s debts came to the surface after the Chapter 13 was filed. They no longer qualified for Chapter 13, and I didn’t want to squander both spouses’ right to a discharge in one case.

So, we deconsolidated, converted one spouse to 7, and dismissed the other’s case, to be refiled later.

Joint cases recapitulated

Let’s go over the rules that got us here in the first place.

Only spouses may file a joint case.

(a) A joint case under a chapter of this title is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual’s spouse….

(b) After the commencement of a joint case, the court shall determine the extent, if any, to which the debtors’ estates shall be consolidated.

Note that we have one petition, one case number, maybe only one spouse eligible to file the case, but two estates. [That’s an interesting thing to think about some other day.]

FRBP 1015 provides for consolidating separate cases filed against the same debtor or seprate cases filed against related debtors. The cases may be jointly administered, and may be substantively consolidated. In a largely trustee and individual debtor practice, I don’t think I’ve ever seen a case where estates were formally substantively consolidated.

Deconsolidating

Since the idea is that a joint case is really two cases treated in most ways as one, deconsolidating undoes the joinder and results in two cases treated as two cases.

It’s accomplished by motion. See Siligman. 417 BR 171 for a discussion.

Note that one of the severed cases will be assigned a new case number, but the date for the order for relief remains the same. One of my clients reported that credit reporting agencies were inclined to think that she’d filed a second bankruptcy case. Be forewarned.

If your joint case is a Chapter 13, consider the practicalities and be prepared to address them in your motion.

Will all pleadings in the joint case be treated as filed in the newly numbered case?
Will amended schedules for the now severed spouses be required?
How will plan payments made to date be treated?

The trustee or the court clerk may be a resource for resolving some of these questions.

Image courtesy of Flickr and TheJCB