Finances shouldn't stop you from marrying the person of your dreams, but looming debts might make you pause a moment. Understanding how two financial pasts mix in marriage is an important step to ensure your future stability with another person. If your partner carries debts serious enough to warrant bankruptcy, here's what you need to know before the process begins.
Considering Bankruptcy Before Marriage
If you have yet to tie the knot, you and your partner should first consider a preemptive bankruptcy. Filing for bankruptcy while still single makes the process much simpler and avoids any risk of shared asset seizure. You and your partner can then start a new life together free from the shadow of creditors and interest payments.
Protecting Your Own Credit Score
The good news is that your credit score is in no way connected to your spouse's, except in the case of joint loans. So long as a debt or asset is only in your name, it will not be vulnerable to the bankruptcy process. Additionally, you are not responsible for any new loans your spouse takes out independently. You may be married, but you are not the same person in the eyes of the law.
One common situation that can damage a spouse's credit score is a supplementary credit card. These cards, authorized to someone other than the account holder, can be useful for rebuilding bad credit. But because you are ultimately responsible for that account, any charges racked up by your spouse will ultimately rest with you and may not be discharged with your spouse's debts.
Shielding Your Assets
Generally, only assets that explicitly belong to your spouse are eligible for a bankruptcy estate. Alabama is not a common property state, meaning shared marriage assets cannot be seized for liquidation. So if you are the sole debtor on a mortgage, your spouse's bankruptcy cannot result in a foreclosure of your home. Bear this in mind before you make any major purchases on top of existing debt.
Avoiding Bad Spending Habits
Many bankruptcies are caused by sudden, unavoidable events like accidents or illnesses. Work to improve your spouse's money management before taking out credit together or merging your bank accounts. This keeps you off the hook for any future debt incurred by your spouse and will make it clear to the court which assets are yours.
Managing Joint Debts
Most married couples eventually apply for credit together, known as a joint debt. This allows you to qualify for higher loans together, but it means you are each responsible for that new debt. If you already have joint loans before your spouse files for bankruptcy, particularly a chapter 7 bankruptcy, you may be stuck with the sole burden of the loan.
You may not appreciate the extra financial stress, but your own credit report should not mention your spouse's bankruptcy or be impacted in any way. You can disentangle yourself from the bankruptcy without sacrificing your joint loans. Under a chapter 13 bankruptcy, you may be able to negotiate with the creditor to continue paying the debt down jointly.
Rehabilitating Your Joint Credit
With all of this in mind, the primary risk to your credit from a bankrupt spouse is the loss of your ability to apply jointly. This can shut you out of the larger loans most couples need to buy a house or new car. But once your spouse is free of his or her bad debt, you can work together to rebuild. With a few smart choices, your spouse should be credible again within a few short years.
If you and your partner are tired of living under the shadow of creditors, now is the time to free yourself and set your finances straight. Plan ahead and arm yourself with a skilled, seasoned attorney to fight for your interests. Call Frances H. Hollinger, Attorney at Law, to learn which bankruptcy strategy is best for your income, debts, and assets.