There are many questions people have when they are considering filing for bankruptcy, and for good reason: A bankruptcy filing does have a significant impact on your credit report for 7-10 years. But there are also a lot of myths out there that have become ingrained in popular culture about bankruptcy. Remember that bankruptcy laws were designed to help people in deep financial trouble make a fresh start, and that many people have filed for bankruptcy protection, even some of the world's most prominent businesspeople. A number of factors weigh in on the decision to file for bankruptcy. One question that many people have is this: If I file for bankruptcy individually, will it affect my spouse’s credit?
The short answer is that it shouldn’t, but it might. In other words, like so many things in life, it depends on your specific circumstances. Credit reporting is an individual matter, and filing for bankruptcy can also be an individual matter, even if you’re married. The key distinction here is between individual debt accounts and jointly held debt accounts. For example, if the debts you’re seeking to discharge in a Chapter 7 filing are all your own credit card accounts, none of them should appear on your spouse’s credit report. Thus the bankruptcy will not affect his or her credit score. However, if your spouse is an authorized user on any of the credit cards, it probably does appear on her/his credit report, so the bankruptcy will also be seen there as well.
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Remember, however, that when you file for bankruptcy, all debts must be listed, including those that are jointly held, such as a mortgage that has both your names on it. If you are opting to retain your home by using the homestead exemption, you will keep making your mortgage payments on time and there should be no negative effects on your spouse’s credit report. Jointly held debts will appear on the spouse’s credit report, and may also show that the co-signer has filed for bankruptcy. Simply filing for bankruptcy shouldn’t affect the spouse’s credit as long as the payments continue to be made on time. It's also important to note that any property that is held jointly could potentially become part of the assets that the Bankruptcy court considers during the repayment process.
If you and your spouse apply for a loan together in the future, it's possible that your bankruptcy may impact your shared ability to get credit. Although your spouse’s credit score is not affected, the lender may decide not to approve the loan because a co-signer has a bankruptcy on her/his credit report. Credit scores for both applicants are considered in a joint loan application. This can make it more difficult to make major purchases, such as taking out a mortgage. Also, if a married couple files their taxes jointly, any back taxes owed will still need to be paid by the non-bankrupted spouse.
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A final note: the decision to file bankruptcy individually versus as a married couple is a serious one. It's important to have an open and ongoing dialogue with your spouse about your financial reality and explore the choice together. We also recommend expert advice. Use a qualified, reputable bankruptcy attorney to help you evaluate your options, prepare your filing and get the fresh start you’re looking for.
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