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What Happens to Your Spouse's Credit when You File Bankruptcy?


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TERMINOLOGY

Your spouse does not have to declare bankruptcy just because you have chosen to file. If your spouse is not a joint signer on any of your debt, it may be better if they do not file bankruptcy so they can keep their credit rating intact. By choosing not to file, your spouse can still apply for credit in their name while you are waiting for your bankruptcy to be discharged. Many lenders will not extend credit for up to two years after a bankruptcy has been discharged, so keeping your spouse out of the process can be a smart move. Consult with your bankruptcy attorney to find out their recommendation on your spouse’s choice to not file.

Filing an Individual Bankruptcy

If most of your family’s debts are in your name only, it makes sense to not have your spouse file bankruptcy. One thing to be aware of however, is that if your spouse’s credit is delinquent their creditors are still allowed to try and collect what is owed, since your spouse did not file for bankruptcy.

Joint Credit Purchases

Any purchases made using joint credit with your spouse can be considered what is known as community property, and creditors may be able to go after the asset since your spouse did not file for bankruptcy. They may have the right to, since your spouse is a signer on the loan and is not protected by the bankruptcy filing. Ask your attorney what they recommend you should do about community property assets, to see if they recommend filing a joint bankruptcy.

Future Implications

Even if your spouse does not file for bankruptcy, you did choose to file. This can have implications later on if you try to apply for joint credit to purchase a sizable asset. Your spouse’s credit will be clear, but your credit rating will still show a bankruptcy was filed. This may not matter for smaller purchases, but for larger ones you may run into problems depending on the lender and the size of the loan request.

Most lenders base their decision on a joint credit application on the credit and repayment ability of both borrowers. So even though your spouse did not file for bankruptcy, your choice to file may result in the lender not approving your loan request. If your spouse tries to apply for credit on their own instead, they may not have the income to cover the new payment. If you are a co-signer with your spouse as the primary borrower, your credit can cause the loan to be denied. This is lender-specific, so it may not hurt to try to apply as a co-signer for your spouse.

A lender may just put your loan through if you can make them comfortable enough with your purchase. You can try to add more money to the down payment to give the lender less risk. Or you could have someone else co-sign for the loan, and keep your name off the documents.