Bankruptcy and marital debts

How Bankruptcy Affects Married Couples

One of the most common questions I receive as a bankruptcy attorney is: ‘how will filing for bankruptcy affect my husband or wife?’ The issue comes up most frequently when only one spouse is planning to file.

Understanding Joint Debts

Many have the mistaken impression that because they are married, their spouse is automatically responsible for their debts. This is not the case. Both spouses are on the hook only if the debt was incurred in the name of both husband and wife. For example, a credit card account started by your husband while he was a bachelor does not become your legal responsibility just because you’ve tied the knot. On the other hand, a joint credit card account or mortgage you’ve both signed for is a joint debt, meaning both you and your spouse are on the hook and the bankruptcy of just one of you will leave the other holding the bag, or the debt as it were…

Examples

If a husband files bankruptcy without his wife, only the husband’s debts are discharged. If the debts are held jointly, the non-filing wife will still owe even after one spouse has filed bankruptcy. The bankruptcy filing will appear on the husband’s credit report but should not appear on the wife’s. If a non-filing spouse receives and adverse rating on their credit score as a result of their spouse’s bankruptcy, the matter should be addressed immediately with the credit reporting agencies. A non-filing spouse should never have their credit damaged as a result of their husband or wife filing for bankruptcy.

The Bottom Line

The lesson to be learned from this post is simple: your debts are your debts only, only you are responsible for them. This rule has big implications if you’re preparing for bankruptcy because if you file without your spouse, your joint debt will become your spouse’s full responsibility.

In order to make the correct decision, make a list of the debts that are really holding you back. Are they primarily incurred in one spouse’s name? If so, it may be best for the heavily indebted spouse to file bankruptcy to preserve the others credit score. If, on the other hand, joint debts are your main problem, it will be necessary for both spouses to file in order to truly rid yourselves of debt.

Married Couples Can File Jointly

One point of clarification/explanation: when we speak of married couples “both filing for bankruptcy” we’re talking about a joint petition in which one case is filed under the names of both parties. This keeps down the cost of bankruptcy by allowing married debtors to file a single case with a single fee.

Image credit: ras marley