What Bankruptcy Does to Your Spouse
Married debtors filing for bankruptcy without their spouse often worry about how it may impact their non-filing spouse’s finances and ability to get credit. Let’s take a look at a few ways that bankruptcy could impact a non-filing spouse:
Joint Credit Cards And Other Accounts
If the bankruptcy debtor’s spouse is on their credit cards or other accounts as a joint account holder, the bankruptcy filing could have an impact. For example, if the bankruptcy debtor’s credit card is listed in the schedules and is ultimately discharged in bankruptcy, the non-filing spouse may still be responsible for the credit card debt and they will not have the right to use the card because the account is closed. Before filing for bankruptcy, the debtor-spouse should discuss and resolve any joint credit cards with their non-filing spouse.
Is the non-filing spouse okay with paying the credit card debt if they are listed as a joint account holder? Can you remove the spouse as a joint credit card account holder before filing bankruptcy? If you are considering paying off a credit card or removing a spouse from the account please discuss it with a bankruptcy attorney first.
Please note, that there is a difference between a joint account holder and an authorized user. An authorized user is allowed to make charges to a credit card but is not legally responsible for paying the debt. If your spouse is an authorized user only, then filing bankruptcy and discharging the credit card debt will not shift the burden of repaying the debt to you non-filing spouse.
Co-Signers And Bankruptcy
Did your spouse co-sign a loan and now you want to discharge the debt in bankruptcy? Non-filing spouses who have co-signed a loan for the bankruptcy debtor will remain responsible for the debt after the bankruptcy discharge. The only way that the co-signer can win debt relief is if they also file bankruptcy and discharge their responsibilities for the debt.
A non-filing spouse’s income is sometimes used to calculate household income when taking the bankruptcy means test. Some debtor’s have argued that their non-filing spouse’s income should not be used for the bankruptcy means test; but the trustee probably won’t accept that argument, especially if the non-filing spouse is the primary bread-winner. For example, if a debtor spouse filing bankruptcy only works a part-time job earning $12,000 a year, using her income alone she would qualify for Chapter 7 bankruptcy .
But if her spouse earns over $100,000 a year and they are not separated or going through a divorce, the bankruptcy trustee may view allowing the debtor to file Chapter 7 bankruptcy based on her income alone as unfair and may insist that the husband’s income is used when calculating household and disposable income on the means test.