When you are in serious debt and considering filing for bankruptcy, it can be worrisome if your bankruptcy will affect your spouse. The good news is that your debts are your debts and so your bankruptcy won’t directly affect him/her.
There is a misconception that a lender agency will expect the spouse to cough up money if you can’t pay the debt. Not only is this not true, but a lender agency cannot even ask the spouse to pay the money. A collection agency might give out threats that they will ask your spouse to give the money for the debt. This is just a scare tactic. In fact, neither can a lender nor a collection agency inform your spouse of your pending debt.
However, to say it is so simple would be foolish. There are four financial points where your bankruptcy will have a monetary affect on your spouse.
Co-signed Personal Loans
Your spouse is responsible for the debt that he/she has co-signed. When you file for bankruptcy, the loan debt can’t be split in half.
Co-signed Credit Cards
The same concept applies to credit cards. The debt cannot be split and the credit card debt is not applicable for bankruptcy.
Co-Owners of Property
You should consider this point if only the property in question does not fall under the bankruptcy exemptions.
Your property will be seen as an asset when you file for bankruptcy. Often, a lender agency will run an evaluation on the value of the property. It could be sold off to recover some of the debt payment. In such a case, 50% of the payment recovered would go to your spouse due to co-ownership.
Is the car loan co-signed by your spouse? Even so, in majority of bankruptcy cases, the vehicle is not touched and it isn’t sold off as an asset.
All of these points are because your spouse has co-signed the loan, not because they are your spouse. This will happen to anyone who has a co-signed loan or co-owns property with you.
Affect on Credit Rating
When you file for bankruptcy, your credit score is going to take a serious hit, but how much will it affect your spouse’s credit score?
It is only on the co-signed loans and credit cards that there will be a negative impact on his/her score. The negative impact depends on the debt amount piled up. The thing to look at is if your spouse’s credit score is high enough to help you get a loan through co-signing after you file for bankruptcy.
If you feel that your financial situation is dire enough and you’re worried about your spouse getting affected by your bankruptcy, don’t be. Go ahead and file it in. Sit down with a professional and discuss the issue of co-signed loans and credit and how it will affect your spouse.