What Happens to Your Spouse's Credit When You File Bankruptcy?
Credit history is established based on your social security, so you are seen as an individual when it comes to credit. But, if you are married, and you´ve acquired debt together, then this joint debt appears on both credit reports. Chapter 7 bankruptcy helps rid you of debt obligations, and allows you a fresh start on rebuilding your credit. This becomes complicated if your spouse has co-signed on certain loans for you, because his credit is at risk. Chapter 7 can be filed jointly or as an individual.
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Filing together
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Your debts do not necessarily belong to your spouse when you file for bankruptcy. But when deciding on going it alone, versus filing together, you should consult a bankruptcy lawyer. There are many factors to consider, since bankruptcy laws vary from state to state. Debt between married couples is treated differently in community property states such as Arizona, Wisconsin, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington. What ¨community property¨ means in relation to bankruptcy, according to DebtHelp, is that the assets you jointly acquired during the marriage are considered ¨equally owned by each spouse¨. Any community property, shared by your spouse, such as a house or automobile is at risk during bankruptcy. In some cases, in order to get debt wiped out by both spouses, filing jointly may be best.
Individual bankruptcy
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You can file bankruptcy by yourself, while your spouse saves his credit rating. This is especially recommended if you compiled your debts before getting married. Filing alone also works best for couples legally separated, and with property that´s already divided, according to Bankruptcy-law.Freeadvice. Consider that while you will be free of any joint debts under Chapter 7, such as home repair or mortgage, your non-bankrupt spouse will still be liable for his share, which could mean negative marks on his credit rating.
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Creditors
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A non-bankrupt spouse can be pursued by creditors when the companies become aware, through credit reporting agencies, that there was an individual filing by the other spouse, says Debt Help. Joint debts and other liabilities must be paid off to avoid any creditor lawsuits or action against the non-filing spouse. If you have a joint credit account, your bankruptcy debt discharge won´t apply to your non-bankrupt spouse. The creditors may pursue him for payment and report any delinquency to the credit bureaus, according to Bills.com.
Consequences
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Your spouse´s ability to co-sign a loan or file a joint credit application will suffer after declaring bankruptcy. This also affects the non-bankrupt spouse, long after the filing, because it will hinder the ability to borrow money for a car or home loan. According to Debt Help, while you can remove the bankrupt spouse from a credit or mortgage application, certain loans like home mortgages could require two incomes to qualify. This inadvertently affects your spouse´s ability to use his credit rating to borrow money.
Before filing
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Whether or not only one spouse files bankruptcy, both are impacted emotionally. For that reason, seek credit counseling and legal advice, says CreditCards.com.
A bankruptcy lawyer will help you decide on which direction to go in filing. He can advise you, given your income levels, which is better: to file bankruptcy jointly or individually. He can also help you understand state property laws and how your non-filing spouse is affected when it comes to property. Seeking a credit counselor can help you map out a plan to exit debt, along with your partner.
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