For some who are facing what feels like endless debt, bankruptcy can seem like the best option for you and your family. However, if you are planning to file but your spouse is not, you may be worried it will still affect both of your credit scores. In short, filing for bankruptcy should not negatively impact your spouse’s credit score, but you must consider several factors to ensure this is the case.
While you may have taken a vow to be partners in everything, sometimes keeping one spouse’s credit score intact and shielded from the impact of bankruptcy is the best option for both of you and your futures. You can file for bankruptcy alone even if you are married, and if filed successfully, it does not always mean one spouse loses all of their possessions.
The impact of your bankruptcy can miss your spouse’s credit entirely, but how it may affect them depends on a few factors.
Disadvantages of Bankruptcy for You
Bankruptcy is an option for people who cannot pay their outstanding debts. It is a legal proceeding in which creditors evaluate all of the debtor’s possessions and assets as possible payments. If you file for bankruptcy, you will no longer be responsible for repaying any debts specified in the discharge order.
Despite relieving you of your debts, there are several disadvantages to bankruptcy to consider before filing, the most important being damage to your credit score. Because bankruptcy lowers your credit score, it can be more challenging to qualify for a loan or credit card. It will also impact your ability to buy a home or rent an apartment.
In the future, these disadvantages can affect your spouse if you ever want to make any of these financial moves together. When you buy a home with a spouse, you have the benefit of joining your incomes to qualify for a larger loan and better terms, but they also consider both credit scores. The damage to your credit score could outweigh the benefits of combining your incomes if you plan to buy a home.
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The debt you owe can either be your own or the debt you owe jointly with your spouse. If the debts you are having trouble repaying are entirely your own, filing for bankruptcy will not affect your spouse’s credit. Even though you are married, your spouse is not legally responsible for paying these debts, so bankruptcy will not impact them.
However, if your spouse is the co-signer of your loans or credit cards, separating them from these debts in bankruptcy can be difficult. When creditors discharge these debts within your bankruptcy, it could affect your spouse’s credit score because they are also legally tied to them. Even if your spouse does not file with you, the discharged loans could still show up on their credit.
Aside from your spouse’s credit score, there are other ways for your bankruptcy to affect your spouse’s financial status and lifestyle. Much of this will depend on what assets and possessions your credits will force you to give up.
When you file for bankruptcy, the court will assess all of your possessions to determine what they can use to repay the creditors. This determination will include land, primary and secondary residences, vehicles, household and personal items, business properties, and financial assets such as investments.
Any property you purchased before your marriage or on your own will be fair game for the court to evaluate and possibly use to repair your debts. This decision means that if you purchased your home before marriage, or you are the only name on the loan, your spouse may not be able to keep the house either. Similarly, credits usually consider any property you purchased together for sale in the bankruptcy process.
There are ways to protect your property from bankruptcy. You and your spouse will need to determine which property is most important; then, a bankruptcy lawyer will be able to help you find ways to protect it.
A No-Asset Bankruptcy Case
No-asset bankruptcy is a chapter 7 bankruptcy in which the debtor does not have to sell their property, and this can be beneficial for reducing the impact your filing has on your spouse. These cases often finish very quickly because there is no opportunity for the trustee to seize and sell off your assets.
The laws regarding chapter 7 bankruptcies vary from state to state, but there are certain assets that debtors are exempt from forfeiture. These include prescription health aids, tax refunds, and education or savings assets. Additionally, if you are a resident of the state you are filing in, the debtors may be exempt from seizing your primary home.
In many cases of no-asset bankruptcies, the assets are exempt because they are not worth more than what you still owe for them.
Your Spouse’s Credit Will not be Affected by Bankruptcy
Overall, your spouse’s credit score will not be affected by your bankruptcy simply because they are married to you. The only way for it to affect their credit is if you share the debt. When you are the only person responsible for the debt, it is absolutely possible to keep your spouse’s credit clean if bankruptcy seems like the best solution to your financial troubles.