How Does Bankruptcy Affect Spouses?

By Heather Frances J.D.

Bankruptcy may be your path away from overwhelming debt and can give you a fresh start. If you are married, your spouse does not have to file with you; but filing alone doesn’t mean that your spouse won’t be affected by the bankruptcy. Under Chapter 7 bankruptcy, depending on your state of residence, assets held in your spouse’s name may be sold to satisfy creditors, and your spouse's credit score could be negatively impacted.

Community Property States

In community property states – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin – all marital assets can become part of the bankruptcy estate. Community property states consider property held by either spouse and acquired during the marriage to be the property of both spouses; thus, property can be sold to pay the filing spouse’s debts even though it is in the non-filing spouse’s name. Certain exceptions may apply.

Common Law States

In states without community property laws, only property held jointly by both spouses can be sold to pay creditors. If the non-filing spouse holds property in her name only, she likely will not lose those assets. However, the bankruptcy court looks at total household income and total household expenses to determine the filing spouse’s eligibility to file for bankruptcy.

Get a free, confidential bankruptcy evaluation. Learn More

Cosigning

If the non-filing spouse cosigned on debts with the filing spouse, her credit may be negatively affected by the bankruptcy filing, although this can be complicated. Furthermore, even if the bankruptcy removes the filing spouse’s requirement to repay the debt, the non-filing spouse still has to pay the full amount of the debt because she cosigned for the loan. A Chapter 7 bankruptcy filing does not prevent your creditors from going after the cosigners on your debts.

Credit Score

Unless the non-filing spouse cosigned on the filing spouse’s debts, her credit score likely won’t be affected by the bankruptcy. Still, a bankruptcy can impact the couple's ability to obtain loans or low interest rates, as lenders usually consider each spouse's credit score before granting a loan. The filing spouse’s credit score will list the bankruptcy for up to ten years.

Get a free, confidential bankruptcy evaluation. Learn More
What Can I Keep if My Husband Files Bankruptcy but I Don't?
 

References

Related articles

Assuming a Debt in Divorce

Though many couples focus their efforts in a divorce on who gets a greater share of the property, the way your debts are divided may be even more important. Your debts don't disappear when you divorce, so the court must split those debts fairly or evenly between you and your spouse, depending on state law.

Bankruptcy Laws Concerning Real Property Owned by Two Separate People in Texas

If you're considering bankruptcy, you may be wondering how the filing will affect a co-owner and the property you own together. Although you will be filing in Texas, federal law governs much of the bankruptcy process. Therefore, the extent to which your spouse or any other co-owners are at risk depends in large part on the type of bankruptcy you file, the ownership arrangement you have with the co-owner, and when the property was acquired.

Three Options to Protect Your Car in a Bankruptcy

If you're facing Chapter 7 bankruptcy, you may lose your car. However, depending on where you live and your personal circumstances, you may be able to keep your car even if you file Chapter 7. In other instances, filing Chapter 13 may be a better option if you want to keep your car.

Bankruptcy

Related articles

Bankruptcy & Community Property

In a Chapter 7 bankruptcy, the trustee, the person appointed by the court to represent creditors and administer the ...

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 ...

Can I File for Bankruptcy With My Spouse If We Already Filed for Divorce?

You can file for bankruptcy with your spouse after you have filed for divorce as long as the divorce has not become ...

California Laws on Community Property in a Bankruptcy

California is one of only nine community property states in the U.S. Married spouses who live in those state shares ...

Browse by category
Ready to Begin? GET STARTED