In our last post, we began discussing the issue of how a spouse or fiancé can be impacted by a bankruptcy filing. For couples, it is important to realize that filing for bankruptcy can have an impact on a spouse not only by increasing that spouse’s responsibility for jointly held debts, but also by decreasing the debtor’s access to credit, thus putting more strain on the solvent party’s credit.
The length of time a couple has to deal with credit issues depends on various factors, including the type of bankruptcy filed. According to Experian, Chapter 7 bankruptcy filings remain on a debtor’s credit report for 10 years, while Chapter 13 filings remain on a credit report for 7 years. Although a debtor’s credit health often makes significant recovery before a bankruptcy filing is removed from his or her credit history, contending with credit access limitations can be a challenge for some couples, depending on what stage of life they are in.
For those who are engaged to be married to a bankrupt partner, the expectation should be that it will take time for the in debt partner to recover financially. It is not a bad idea for such couples to keep their financial life as separate as possible. Keeping finances separate includes retaining debts that existed prior to the marriage and avoiding joint credit accounts and other joint debts to allow the non-bankrupt party to maintain an untainted credit history. Credit scores are separate, since they are based on an individual’s Social Security number. If spouses keep their finances separate, their credit scores should only reflect their own history.
Engaged couples should realize that Chapter 13 bankruptcy filings involve a three to five year repayment plan, while Chapter 7 filings are completed in a much shorter period of time. Again, following a bankruptcy, the bankrupt partner will have to go through a number of years where he or she reestablishes a healthy credit. This could involve sacrifices on the part of the non-bankrupt party, depending on how they handle finances during this recovery period.
Although bankruptcy is not something that has to break a couple, it can certainly become an occasion for financial stress, which can end up impacting the relationship. Couples who want guidance as to how they can do their best financially while dealing with a bankruptcy can benefit from working with an experienced legal advocate.