Will Bankruptcy Affect My Partner?
There are a number of questions that folks have concerning how their past debt and bankruptcies will affect their partner’s credit score once they are married. There is no reason to be concerned that you will be hurting your partner by bringing debt or a poor credit rating into a marriage. Below, we’ll discuss the various scenarios. To learn more, speak to a Dallas TX bankruptcy attorney at Allmand Law Firm, PLLC.
There Are No Shared Credit Reports
Many people think (erroneously) that spouses share a single credit report. They don’t. Instead, they may have accounts that are on both credit reports. Spouses who share credit cards, bank accounts, mortgages, and car loans will have these accounts on both of their credit reports. This does not, however, mean that there is only one credit report.
Bankruptcy and Getting Married: What Happens If I Bring Debt Into a Marriage?
When you get married, you begin building what is called “marital property”. Marital property is distinct from your own personal property insofar as it is property that is owned by both you and your spouse. Prior assets and debts do not become marital property.
In short, if you file for bankruptcy before getting married your future spouse will NOT be affected. This is a common concern for a debtor to bring up during their consultation with an attorney. For some reason, many people are under the impression that a couple shares a credit score or there is a “joint credit score.”
For the most part, debts incurred by one party will be the responsibility of the person whose name is on the debt; unless, your future spouse co-signed a loan for you. If you file bankruptcy and the debt included is owed by you only, then the process should not have an effect on your spouse-to-be. In many cases, as long as the debt is yours, meaning you are liable for outstanding amounts owed, you should get them discharged or eliminated with no problems.
The situation may be different if your future spouse co-signed a loan for you. In this case, if you file for protection the creditor could pursue your future spouse if they choose not to file bankruptcy. Unless your future spouse has the ability to repay what is outstanding on the loan, they may want to consider filing for protection as well.
Sharing Credit and Bankruptcy
Spouses have the ability to keep their finances completely separate from each other. In some cases, spouses will share a line of credit or even the vast majority of their lines of credit. In this case, one spouse with a bankruptcy or substantial unpaid debt on their credit report can pose a serious problem for both spouses. You might have better luck applying with only one spouse whose credit is pristine rather than both spouses if one is recovering from a bankruptcy. You may not qualify for as high a loan, but your interest rate will be lower.
Is Keeping Our Assets Separate Better?
There are cases in which your spouse’s debt can hurt you. Let’s say your spouse owes for student loans or there’s a tax lien on their assets. Couples who file a joint return will see that money taken out of their return to recover the debt.
Texas is one of a handful of states that is considered a “community property” state. That means that any property acquired jointly is property of the marriage. In some cases, Texas will consider student loans property of the marriage when both spouses benefited from what the student loans brought.
For instance, if one spouse gets a lucrative job because of their college education, Texas may see fit to declare the debt “community property”. If you were ever to be divorced, instead of the debt being owned by one or the other spouse, it would be split in half and become the burden of both spouses. It also must be determined if the student loans were incurred during the marriage. In that case, the court will assume that both of you used the student loan money to live off of and will consider it property of the marriage. The question will not be whether the debt is considered marital property, but the money earned from the degree.
Joint bank accounts can get tricky in Texas. If your spouse owes a creditor money and you have a joint bank account together, the creditor may be able to go after commingled funds or assets. In this case, your safest bet is to remove the spouse’s name from the accounts or properties that you hold in common. This can shield them from potential creditors who might go after the properties.
What About Jointly Owned Property?
Jointly held property is uniquely vulnerable to outstanding debts. Let’s say you and your spouse have been paying on a mortgage. But one spouse has charged tens of thousands of dollars onto a personal credit card from online gambling sites. A creditor can, in this case, file suit against the spouse and place a lien on their share of the equity. This can create a problem for the other spouse when it comes time to sell the property. Additionally, they can begin garnishing wages or levying joint bank accounts on which the debtor spouse has his name.
Your share, however, remains safe, but the property itself is now title clouded with multiple individuals claiming at least a portion of the equity. Title clouded properties can be difficult to deal with.
If the property is real estate and not the home in which you reside, the creditor can force the sale of his share of the equity transferring the debt to someone else. There are those who purchase these kinds of liens for the interest or to acquire the property. They cannot, however, force the sale of a homestead property.
If they file for bankruptcy, however, they may be able to discharge that debt and prevent the lien from ever going into effect.
What About Jointly Held Bank Accounts?
Once a creditor successfully sues you and gets a judgment, your assets are vulnerable including jointly held bank accounts. Jointly held bank accounts are also frozen during bankruptcy. You can remove your spouse’s name from the account, but you need to be careful here. If the bankruptcy trustee feels you are illegally hiding assets, it can jeopardize your spouse’s bankruptcy.
A good strategy here is for the debtor spouse to open up a bank account in his own name. Then they can deposit their share of the funds. This will make it more difficult for creditors to raise objections during the bankruptcy.
Even After Marriage, Your Spouse Will Not Be Responsible for Debt
Even after you get married, your spouse will not be responsible for repaying debt that was discharged in bankruptcy. If you are considering bankruptcy and your future spouse did co-sign for you on debt you intend to include in your filing, both of you may want to review the benefits of filing.
Are You Considering Bankruptcy? Speak to a Dallas TX Bankruptcy Attorney