How Bankruptcy Can Affect Your Spouse, According To a Bankruptcy Lawyer

If you’re married and currently in a bad financial situation, you’re probably wondering if filing for bankruptcy will impact your spouse as well. Perhaps it may result in negative consequences for your spouse, or they may be held responsible for some part of the debt. Should you file for bankruptcy together or on your own? In this situation, it’s best to consult a debt lawyer to understand the obligations and consequences of filing for bankruptcy.   

The biggest question among potential bankruptcy filers is how the action can impact their spouse. Unfortunately, there’s no one answer, and the response can vary depending on where you’re filing for bankruptcy: is it a community law property state or a common law property state? Let’s go through some of the questions you may have:

How Filing Chapter 7 Can Affect Your Spouse’s Credit 

In Chapter 7 bankruptcy, the court orders the liquidation sale of your assets so as to pay off creditors. Items that are considered necessary for daily living, such as household appliances, clothes, and a car, are exempt. The court will appoint a trustee to manage the proceedings, and although you’ll be able to start fresh when it’s over, 7 Chapter bankruptcy stays on your credit report for ten years. 

The good news is that it won’t appear on your spouse’s credit report unless you file jointly. But despite not affecting your spouse’s credit score, your bankruptcy makes it more difficult to get loans together when you want to buy a car or house. Even if you want to open a new line of credit, lenders will see you as more of a risk. 

Should I File Jointly? 

Most bankruptcy lawyers advise against filing jointly, as it protects your spouse’s credit score. Additionally, it means you can work on re-establishing your credit score by asking your spouse to co-sign on new debts. Just remember that community law states that all property and debt that’s incurred during a marriage is considered shared. This is also the case if one party pays for most of the assets, so creditors can go after the shared property to pay off debts. 

How Filing Chapter 13 Can Affect Your Spouse’s Credit 

In Chapter 13 bankruptcy, the goal is to reorganize your debt and pay off some of it. If you file for Chapter 13 individually, it won’t impact your spouse’s credit. As the filer spouse, you need to work with the trustee to prepare a repayment plan and submit it to the court. This is to prove that you can partially pay off outstanding debts throughout five years. 

A Chapter 13 bankruptcy will stay on your credit report for seven years, and it won’t appear on the non-filing spouse’s report unless you file jointly. Just remember that any bankruptcy, whether it’s debt discharge or reorganization, will make it harder to secure credit or a joint mortgage with your spouse since it’ll be on your credit report. 

The Impact Of Bankruptcy On Shared Debts 

If you file for bankruptcy, it can affect your spouse if some of the debts are held jointly. This is the case if you’re filing for bankruptcy in a community property state but not if it’s a common law state. Florida, for instance, isn’t a community property state. 

Since it’s a common law state, the debt discharge will go on your credit report instead of your spouse’s if the debt is in your name. But if your spouse co-signs on a credit card with you, they’d be liable for the debts on those cards, even if your debts are discharged.  

On the other hand, in community property states, any debt incurred during a marriage is split between spouses. Keep in mind that your creditors can go after assets, such as cars or joint bank accounts, where both spouses are listed as owners. Even if that’s the case, the non-filing spouse’s credit won’t be affected if you file for bankruptcy. 

The Impact of Bankruptcy On Shared Marital Property  

Filing for bankruptcy can affect your spouse’s property, but it depends on whether you’re filing in a community property state or a common law property state. If your spouse owns property individually and you live in a common law property state like Florida, they won’t be affected. However, any joint assets that are shared between both spouses are subject to bankruptcy proceedings. These are assets that both spouses have ownership of. 

For spouses who live in a community property state, any assets acquired throughout the marriage are shared between both parties. That includes property that’s purchased individually, such as cars or luxury goods. Therefore, filing for bankruptcy in a community property state is sure to affect the non-filing spouse as well, who could be held responsible for assets acquired during marriage.

Filing For Joint Vs. Individual Bankruptcy

As long as you don’t mention your spouse’s name when filing for bankruptcy, you’re filing as an individual. If you’re struggling to decide which option is better, here are some factors to consider: 

  • Who does most of the debt belong to? When most of the debt belongs to a single person, it’s preferable to file for bankruptcy individually. Otherwise, filing jointly could make your spouse responsible for debts they didn’t incur and affect their credit report, both of which could strain a relationship. 
  • How long have you been married? If you’ve recently gotten married, one person likely has more debt than the other. In this case, it’s better to file separately. While your spouse could help pay off the debts, they shouldn’t be held liable to do so. 
  • Is your spouse expecting to receive an inheritance? In this situation, it’s best to file separately. Otherwise, creditors could end up going after that money to pay your debts. 

In some cases, however, the answer is less clear. For instance, if one of the spouses owns a business or if you’re considering filing for divorce. Therefore, it’s best to consult a qualified bankruptcy attorney before making a decision.

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