Your finances will most likely be affected if your wife files for bankruptcy. Several factors determine how you will be affected, like whether debts are held jointly, the total marital property and your contribution to household income. Another major factor is whether you live in a community property state or one recognizing common law property rules. In a community property state, assets and debts are jointly held by the married couple. A common law property state allows each spouse to own individual property and incur debts for which he alone is responsible.
If your wife files a Chapter 7 bankruptcy, her portion of the joint debt will be discharged (eliminated), and you will be responsible for the remainder. If you and your wife live in a community property state -- California, Arizona, Washington, Idaho, New Mexico, Louisiana, Wisconsin, Nevada or Texas -- you may be responsible for debts incurred only by her during your marriage. However, if you live in a common law property state, then your wife is responsible for all the debts that she alone incurred before and after your marriage.
Only assets specifically attributed to your wife may be used to pay her creditors, if you live in a common law property state. In a community property state, all assets owned by you and your wife can be sold to pay your wife's debts, even if you are not declaring bankruptcy. If you have a prenuptial agreement with your wife, your assets may be legally separated. In the event one spouse declares bankruptcy, the couple's assets and debts will be treated like they lived in a common law property state.
Impact on Your Credit
Your wife's bankruptcy will hurt your credit score, unless you continue making payments on joint debts. If you have a joint car loan with your wife, and your wife's obligation is discharged in bankruptcy, you have to keep paying on the loan. If you stop making payments, or if payments are late, then your credit will be negatively affected. Future joint loans, like on a mortgage, will be difficult to get and lenders may charge a higher interest rate because of your wife's bankruptcy. The bankruptcy will stay on your wife's credit report for 10 years.
Filing a Joint Bankrupcty
There may be a situation in which it makes sense for you to consider filing a joint bankruptcy. If you are in a community property state, and if your wife is filing a Chapter 7 bankruptcy, both of your assets are going to be liquidated to pay your wife's creditors. Your income will also be considered as part of household income, which is used to determine if your wife's income is low enough to meet the Chapter 7 income requirements. Since your assets and income bear on your wife's bankruptcy, a joint bankruptcy filing may make sense if your credit history is poor.