Many people ask us, “Will filing bankruptcy affect my spouse’s credit?” This is a common question we hear in our law firm when one spouse needs to file a bankruptcy case but the other spouse does not. The concern that one spouse’s debt problems will negatively affect the other spouse is a normal concern; however, there are many cases where one spouse can file bankruptcy and the other spouse is not affected at all.
Scott and Amy’s Story
Scott and Amy got married two years ago. Scott had substantial credit card debt at the time while Amy had no debt except her car payment. Over the past two years, Scott has struggled to pay his credit card debt and due to high interest rates, late fees, and other fees, balances were not coming down. Scott thought about filing bankruptcy but he was concerned that his bankruptcy filing would affect his spouse’s good credit score. Because of this fear, he put off consulting with a bankruptcy attorney. When Scott received notice of a lawsuit being filed by one of his creditors, he knew that he could not put off meeting with an attorney any longer.
Together, Scott and Amy choose to consult with our office to discuss possible bankruptcy solutions. After reviewing their financial situation, our attorney advised Scott that he should file a Chapter 7 case to eliminate his credit card debt. Even though both Scott and Amy worked, their joint income was below the median income level for a two-person household; therefore, Scott qualified to file under Chapter 7. The bankruptcy filing would wipe out all of Scott’s credit card debt giving him a clean slate to begin rebuilding his credit rating.
Because the credit card debt was solely in Scott’s name, Amy did not need to file a joint bankruptcy case with Scott. Scott’s bankruptcy filing would not affect Amy’s credit report in any way because none of the debt was joint debt. There would be no reason for any of Scott’s creditors to report his bankruptcy case on her credit report. However, had Amy and Scott had joint debt, a filing by Scott could potentially affect Amy’s credit report.
Joint Debts When Only One Spouse Files Bankruptcy
If Scott and Amy had joint debts, Scott’s bankruptcy could potentially harm Amy’s credit score. When you co-sign a loan or a joint credit application, you agree to be responsible for the entire debt if the other party defaults on the payments. In other words, when the joint debt is discharged through Scott’s individual bankruptcy filing, the creditor will look to Amy to repay the entire debt. If Amy does not pay the debt, the creditor will report the default on Amy’s credit report. This would in turn harm her credit score. However, if Amy continues to pay the joint debt, Scott’s bankruptcy filing will not affect Amy’s credit score. The debt would be discharged as to Scott but Amy is free to continue paying the debt to protect her credit score. Joint debt is the one time that filing bankruptcy may affect your spouse’s credit score.
Depending on the couple’s overall financial situation, it may be in their best interest to file a joint bankruptcy case instead of an individual filing. In order to determine what is best for the couple, a bankruptcy attorney must review the financial condition of both spouses individually and as a couple. Once the attorney has analyzed the overall financial situation, he can advise the couple if it is in their best interest for one spouse to file bankruptcy alone or if the couple should file a joint bankruptcy case.
There are numerous elements to be considered when a couple is choosing whether to file a joint bankruptcy. Any number of factors can influence that decision. Instead of continuing to struggle because you are afraid that filing bankruptcy will affect your spouse’s credit score, contact our office for a free bankruptcy consultation. It does not cost you anything to get the information you need to make an informed decision about whether filing bankruptcy is in your best interest.
