Bankruptcy can be a major disruption in the life of a debtor. And, when the debtor is married or engaged to be married, this disruption can impact his or her spouse quite significantly. For those who are married to an individual who has filed for bankruptcy, the question becomes: how much will this impact me, and how can I protect myself?
For married people with a bankrupt spouse, the degree of impact will depend, among other things, on how united their financial life is, what type of bankruptcy the spouse filed for, how they handle finances after the bankruptcy is completed and whether a divorce is involved.
On the first issue, it is important to realize that any debts a couple is jointly responsible for will end up impacting both of their credit scores in the event of default. Also important to realize is that creditors can pursue any jointly liable party for the whole of the debt, regardless of whether the non-bankrupt party is able to handle that debt on his or her own. If there has been a divorce, this doesn’t change anything in terms of the creditor’s ability to pursue either party for the debt, though the non-bankrupt party would be able to pursue the bankrupt party to enforce the terms of a divorce decree or settlement with respect to debts the latter was assigned in the divorce.
Whether or not a partner or spouse files for Chapter 7 bankruptcy or Chapter 13 makes a difference both in terms of how a spouse’s property will be affected, and how long the bankruptcy will impact the debtor-spouse’s credit. In our next post, we’ll look at both of these points.
Source: USA Today, “Help! Daughter's hubby-to-be is bankrupt,” Karin Price Mueller, August 22, 2015.