How Will My Spouse Be Affected by Bankruptcy?

Depending on how your debts are arranged, your spouse will experience different consequences to your bankruptcy. When two people marry, their credit scores, financial histories and estates are not necessarily fused at all places. Instead, they can decide where, how and whether to combine their finances into one joint unit. Some married couples will combine everything; others will remain positively separate. Further, the rules of each state have some determinant over the merging of estates in marriage. These factors will determine how a bankruptcy is handled for a married couple.

Joint Debts and Assets

Some debts and some assets will be considered joint if a married couple chooses to structure them that way. This most commonly occurs with the purchasing of a home. Most married couples purchasing a home will decide to do so together, placing their names on both the deed to the home and the deed to the debt. The home's title, on file with the county, lists both parties as owners. Similarly, the mortgage company lists both parties as borrowers. You do not have to share either the debt or the ownership of a property. However, it is common to do so.

Individual Debts and Assets

Some debts and assets are never joined. This is often the case when a person has acquired the debts or assets prior to marriage. For example, student debts are usually the obligation of only one spouse. Similarly, assets distributed from an ancestor's estate may be the asset of only one person in the marriage. State laws dictate which assets are considered joint in a marriage. In California, all assets acquired after marriage has taken place are shared unless a prenuptial agreement exists. In other states, assets acquired by one spouse are the sole property of that person unless otherwise recorded.

Joint Bankruptcy

It is possible for a couple to declare bankruptcy jointly. In this case, the couple is saying their shared income can no longer meet the requirements of their shared debt obligations. Shared assets would be used to pay off debts if liquidation occurs. Assets owned by one spouse may not be subject to liquidation unless the assets held jointly are insufficient to cover debts. In that case, both parties would be asked to liquidate. The bankruptcy would appear on the record of both individuals in the marriage.

Individual Bankruptcy

If only one person is filing for bankruptcy, that person's individual debts and assets would be settled first. The spouse may be affected if the individual is also seeking assistance with debts he or she shares with the spouse. In that case, the shared debt and shared assets could come into play in the individual bankruptcy. It is possible for the remaining spouse to purchase the bankrupt spouse's share of an asset so the asset will be preserved from liquidation. Otherwise, the asset may be subject to court-ordered seizure. The credit score of the remaining spouse will not be affected unless shared debts are included in the bankruptcy process. 

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