Will It Affect Me if My Wife Goes Bankrupt?

By Timothy Mucciante

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.

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.

Joint Debts

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.

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Individual Property

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.

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How Does Bankruptcy Affect Spouses?

References

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How to List Your Spouse in a Bankruptcy to Discharge Community Debt

For spouses who live in community property states, most property and debts acquired during the marriage are considered under the joint ownership and responsibility of both spouses. So unless you list your spouse as a co-debtor on the bankruptcy petition, she will likely remain on the hook for your shared debts, even if your individual responsibility for them was discharged by the bankruptcy.

What Happens in Bankruptcy If I Own My Home Outright?

If you're considering bankruptcy, you're naturally concerned about what you can keep and what may have to surrender. If you own your home outright, you may or may not lose it if you file bankruptcy. Several factors, including the laws of your state, determine the final outcome of your bankruptcy petition.

Can a Wife File Chapter 7 With a Husband If All the Debt Is in the Husband's Name?

In a Chapter 7 bankruptcy, assets are sold to pay the debtor's obligations and eligible debts that are not satisfied by the liquidation are discharged, meaning the debtor is no longer obligated to pay them. If a debtor has a wife, he can file for Chapter 7 individually or together with his spouse. The wife is always allowed to file together with the husband; however, she must consider whether there is any benefit to her if she joins in the filing. If the debt is all in her husband's name, the wife would not get any benefit from filing for bankruptcy with him; she has no debts, so there is nothing for the bankruptcy court to discharge.

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