Does My Business Bankruptcy Affect My Spouse’s Credit?

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 Who Holds Responsibility for Debts After Marriage?

Once a couple marries, managing financial responsibility becomes a core part of their relationship. One spouse may have a better financial standing than the other. But, once they are in a joint relationship, the finances of both parties intermingle. The issue comes up most often when only one spouse is planning to file for bankruptcy.

However, once you do get married, your spouse’s debts do not automatically become your financial burden. This would only be true if the spouses together incurred the debt while being married. Then, they both will be financially responsible for paying off the debt.

For instance, a credit card account initiated by your husband while he was a bachelor does not become your legal responsibility as a wife once you are married. However, a joint credit card account or mortgage signed by both is considered a joint debt.

How Does My Bankruptcy Impact My Spouse?

Life can bring sudden financial hardship, and it may mean filing for bankruptcy for your business. If you are married, there are some consequences to think about. If a husband files for bankruptcy without his wife, only the husband’s debts are discharged. If the debts join, the non-filing wife will still owe even after one spouse has filed for bankruptcy. This means that the impact of bankruptcy depends on whether or not the debt is separately or jointly incurred.

If the husband is responsible for the debt and files for bankruptcy, then that will only appear on the husband’s credit report, but it will not show up on the wife’s. But, if the non-filing spouse receives an adverse rating on their credit score due to the result of their spouse’s bankruptcy, you should immediately contact the credit report agencies. The main point is that a non-filing spouse should not be negatively impacted on their credit if their spouse files for bankruptcy.

Furthermore, as a spouse, you need to consider your own spouse’s assets before deciding to file for bankruptcy. For instance, there is no automatic liability for owning property and bankruptcy. If one spouse owns property in their name only and does not file for bankruptcy, it will not become part of the bankruptcy estate.

However, because bankruptcy leads to liquidation, it does not mean it would extend to marital partners. Generally, all the property you own that goes beyond the value of your state’s exemption laws is subject to sale by the bankruptcy trustee. However, the trustee holds jurisdiction only over the person who files for bankruptcy.

The trustee only has jurisdiction over the property of the party that files. For instance, a husband’s home only in his name will not become a part of her husband’s bankruptcy estate.

As stated earlier, this is typically the case in most situations. But, not all states will recognize this concept. Some states follow the equitable title rule. If your jurisdiction allows it, sometimes a house or other property not in your name can be administered by your bankruptcy trustee. Therefore, contacting a legal expert in the field can help you with your situation.

Can Married Couples File Bankruptcy Jointly?

A joint petition in which one case is filed under the names of both parties is considered as filing for bankruptcy jointly. This is cost-effective for married couples and consists of a single fee.

Before considering bankruptcy, you should carefully evaluate all your other viable options. Bankruptcy should be the last resort. In most cases, once a couple files for bankruptcy, the phone stops ringing immediately. This can allow the couple to think clearly and understand how to proceed further.

What if I Share Debts With My Spouse?

If the married couple shares an account, then you both are financially responsible for the debts. Creditors can still come after your spouse for the debts. Moreover, your bankruptcy may also appear on your spouse’s credit report, although it should not affect your spouse’s credit score as long as they remain current with all the payments.

If you and your partner decide to apply for joint loans or credit accounts in the future, bankruptcy may impact those decisions. For some time, bankruptcy will determine your ability to receive a joint loan with good terms. However, even after you file for bankruptcy, you can work towards better credit as long as you are timely making your payments. Therefore, you still can have a good credit score even after you file for bankruptcy.

How Does My Bankruptcy Affect Our Property?

This was briefly mentioned before, but it varies depending on the value of the asset you own. For example, if you own property together, but it is worth less than the available exemptions, your bankruptcy will have no effect. However, your home may be protected through the homestead exemption.

This issue arises when your spouse owns property worth more than what you can keep during your bankruptcy. After marriage, the property can be purchased jointly. Each jurisdiction has a different stance on the property division in case of a divorce. Therefore, depending on where you reside, you can have variations in the distribution of your property once you file for bankruptcy.

For example, there are community property states which allow both spouses to have joint and equal ownership over most property acquired in the marriage even if only one spouse is on title. The following states adhere to this rule: Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin. You can contact a local lawyer in your state to determine how the property would be assessed after filing for bankruptcy.

How Will a Bankruptcy Affect Applying for Future Credit?

Your spouse’s bankruptcy could impact any joint financing you pursue during your marriage. There will be some financial hurdles you will need to face along the way. If you apply for a mortgage for a home, both spouses’ financial history will be considered. If your partner’s score is low due to bankruptcy, it may mean paying more interest or not being approved for a mortgage. This would be devastating for your family and you.

The interest rate will generally be higher if you apply for a loan on your own after filing for bankruptcy. Your spouse may require a cosigner for a loan to help them attain lower interest rates. However, as a cosigner, you are on the hook and financially responsible for paying back the loan if they cannot.

For a better future outlook after filing for bankruptcy, it is important to ensure that all bills are paid on time. You have to be vigilant and plan to avoid any more financial problems. Depending on the type of bankruptcy filed, that will stay on your spouse’s credit report for either seven or 10 years. The key is to maintain a healthy financial record by making on-time payments.

When Do I Need to Contact a Lawyer?

Even if you are married, usually, debts that are under your name will be deemed your financial responsibility. However, there are scenarios where if the spouses share a loan or a business, they both may be on the hook if either one files for bankruptcy. It is a complex financial crisis and requires legal experts. If you find yourself in this situation, do not hesitate to contact a local bankruptcy lawyer to assist you.

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