How Does My Husband Filing Bankruptcy Affect Me?
In a marriage, if only one spouse owes debt to one or more creditors, then only that one individual must file for bankruptcy. Debts were spouses are separately liable for payment will remain with the spouse who has not filed for bankruptcy. However, in some states that follow community property law, having one spouse file bankruptcy for debts owed by both spouses may prove advantageous in some situations.
In general, one spouse who files for bankruptcy will not affect the financial situation of the other spouse, including the credit rating of the other spouse. A debt is created by contract between a creditor and a debtor, and each debtor must sign the contract in order for the creditor to hold the debtor responsible for payment. Therefore, the bankruptcy of one spouse will not cause the bankruptcy of the other spouse.
When a spouse’s debts are declared satisfied under Chapter 7 bankruptcy, the creditor can pursue the other spouse for the debts owed. However, one of the major advantages of filing Chapter 13 bankruptcy, or where the debtor is committed to a repayment plan, is that the creditor will, or should, leave the co-debtor alone so long as the debtor continues to make his or her payments in a timely manner.
Still, while the bankruptcy of one spouse should not affect the financial situation of the other, there are a few exceptions. For example, if joint debt is involved, the husband’s bankruptcy may show on his wife’s credit report, or vice-versa. Also, if the pair applies for a joint loan later down, the bankruptcy of one spouse could have a negative impact on the creditworthiness of the couple as a pair.
Another exception to consider is that in a traditional bankruptcy, much of the debtor’s non-exempt property is removed by his or her creditors. However, if that property is jointly held between both spouses, it can also be taken away. This is significantly important in states that follow community property law, or states where both spouses are equally responsible for all property and debt that might have been acquired during the spouses’ marriage. Community property states are Wisconsin, Washington, Texas, New Mexico, Nevada, Louisiana, Idaho, California and Arizona.
Similarly, after the community property is removed, the creditors of the non-filing spouse can no longer access property acquired by the non-filing spouse following the debtor’s bankruptcy. Any joint debts that are discharged following the debtor’s bankruptcy filing are also dismissed on the non-filing spouse’s credit report. In other words, in a state that upholds community property law, the non-filing spouse also gets a partial advantage should his or her spouse file for bankruptcy. From that point forward, creditors only have the legal right to pursue the separate acquisitions and properties of spouse not filing for bankruptcy, including items or possessions acquired by inheritance, by gift during marriage or those acquired before marriage.