A judgment is a court order declaring that you do owe the debt and must repay it. How all of this can affect your spouse, if you are married, largely depends on whether you reside in a common law or community property state and the judgment-debtor laws of your state.
According to a recent Pew Research report, 40 percent of weddings in the United States have at least one partner in the marriage who has been married before. One of the many implications of this growing reality is that if you are married, or considering getting married, you will in all likelihood marry a spouse who has unpaid debts. This article will address what happens when you have unpaid debts and whether your spouse can be pursued for your debts.
What Happens If I Don't Pay My Debts?
With the emergence of the novel coronavirus and nationwide stay at home orders in the year 2020, more and more Americans are having to choose whether to pay unsecured credit card debt, home mortgages, and car loans or feed their family. Despite the fact that many states have placed a moratorium on garnishments, evictions, and foreclosures, unpaid debts don’t simply go away. And many other obligations like student loans, child support, and alimony are not as easy to postpone or suspend.
The most obvious consequence of leaving your debts unpaid is attempts by your creditors to collect on those debts through the mail and by telephone. Typically these attempts will be intermittent and very polite in the form of simple “reminders.” However, after a debt goes unpaid for a certain amount of time it will be sent out to a professional debt collector. Once your debt is assigned to a debt collector not only will the original creditor refuse to discuss it with you again, or enter into repayment arrangements, but professional debt collectors can be quite persistent and very, very annoying in their attempts to get you to pay the debt. This can include daily telephone calls, threatening collection letters, deceptive settlement offers, and rude representatives.
If none of this gets you to pay the debt, the next step usually involves the debt collector turning the debt over to a law firm. While most law firms that specialize in debt collection can be just as persistent and intimidating as a collection agency, they will typically limit their contact with you to what federal and state law allows under various consumer protection and fair debt collection laws. While this may lull you into believing the law firm is simply going to give up on the debt and write it off eventually, the truth is that it usually means a lawsuit will soon be filed against you. Often with little or no warning that you have been sued until you are served with a summons and complaint to appear in court.
The summons and complaint are the documents that begin a lawsuit. Once you have received the summons and complaint, in order to avoid a default judgment, you must file a document called an “answer” with the court where you are being sued. An answer is just what it sounds like, your response to the claims made against you in the lawsuit. Once your answer is filed the case will be set for a trial following a short period of time to allow you and the creditor suing you to exchange documents you wish to use in the trial as well as the names of any witnesses you wish to call at the trial.
Unfortunately, if the case goes to trial most individuals do not have very many legal defenses to collection cases. Unless you can show you never borrowed the money or you have already paid it back, there are very few legal excuses for non-payment. In fact, some courts will forego a trial altogether and summarily rule in favor of your creditors after a short hearing.
What if There is A Judgement Against Me?
If the court does rule against you a court judgment will be entered against you. A judgment is a court order declaring that you do owe the debt and must repay it. Typically you have 21 days to pay the entire judgment. If you do not, the judgment creditor can use the judgment to obtain something known as a wage garnishment or bank levy. A garnishment legally allows your judgment creditor to have a portion of your wages withheld by your employer and paid to them until the judgment is paid in full. Typically you can only have one garnishment in effect on your wages at a time. However, federal law limits the amount that can be garnished to twenty-five percent of your disposable earnings. A bank levy on the other hand legally allows your judgment creditor to seize money in your bank account(s) to pay the judgment. Both of these actions are in addition to any other legal means at the law firm’s disposal to collect the judgment including seizing state income tax refunds and requesting that court bailiffs seize and sell your personal property. Typically the only type of income that is not subject to garnishment is federal benefits such as social security benefits, SSI, disability benefits, VA benefits, or retirement benefits.
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Can My Spouse Be Pursued For My Debt?
How all of this can affect your spouse, if you are married, largely depends on whether you reside in a common law or community property state and the judgment-debtor laws of your state.
Community Property State
Community property states are states that have laws that treat the property of one spouse in a marriage as the property of the other spouse as well. While these laws typically prevent one spouse from being deprived of their fair share of marital assets during a divorce, they also create the unintended effect of allowing creditors to garnish both spouses’ earnings when collecting on a spouse’s debt. Fortunately, most states are not community property states so your spouse cannot be pursued for your debts. Currently, there are only nine community property states in the United States: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Even if you do live in a community property state you can avoid exposing your spouse to liability for your unpaid debts by specifically maintaining separate accounts instead of a joint bank account whenever possible, requiring your creditor to agree that you alone will be responsible for your debts and seeking legal advice on how to hold real estate as separate property while married in a community property state. None of this is foolproof however as the laws enforcing judgments in community property states are complicated and debts incurred while married are presumed to be community debts. Meaning they are treated as joint debts even if only one spouse is an account holder, unless you can prove otherwise. And since wages are considered community property if you have unpaid debts that result in judgments against you, your spouses’ wages can be garnished also. And any bank accounts containing their wages can be levied even if they are not joint accounts.
Non-Community Property States
Despite the risk of having unpaid debts in a community property state, the reality is the great majority of states are common law states. This means that your spouse is not responsible for your unpaid debts. That is not to say that if you do not live in a community property state, you should not take precautions. Courts have a lot of power to tailor their judgments to the specific facts of a case. So in order to make sure you do not invite creditors to try and get access to your spouses’ assets you can take a few simple precautions like maintaining separate bank accounts and taking steps to avoid co-mingling, or mixing your funds together in any type of joint account whenever possible.
Can A Bankruptcy Case Help Me?
Bankruptcy can be an effective and affordable means of eliminating your unpaid debts before or after a judgment has been obtained against you. Bankruptcy not only frees you from the obligation to pay debts you can no longer afford to pay but it legally prevents your creditors, debt collectors, or law firms from trying to collect those debts from you again. When you file bankruptcy something known as an “automatic stay” takes effect immediately upon your filing that legally prohibits any further debt collection activity from being taken against you and legally suspends or “stays” any debt collection activity already in progress – including lawsuits!
How this will affect your spouse once again depends on whether you reside in a community property state. If you do reside in a community property state, your bankruptcy will not protect their assets unless they file with you. Even if you do not live in a community property state, if your spouse is a co-debtor or co-signer on an unpaid debt of yours, or has funds in a joint account with you, the automatic stay in a Chapter 7 bankruptcy will not protect your spouse.
Whether you file alone or file jointly with your spouse, at the conclusion of your bankruptcy you will be granted a discharge. A discharge is an order from the bankruptcy court that eliminates your obligation to repay those debts. And legally prevents any of your creditors, or others, from trying to collect those debts again.
Dealing with the consequences of unpaid debts does not necessarily have to spill over to your spouse and in most cases will not. Still depending on the state you reside in your spouses’ assets may be at risk if your debts go unpaid for too long. Taking advantage of the fresh start that bankruptcy can offer also does not necessarily have to include your spouse. But the sooner you get a hold on your lingering unpaid debts, the less you and your spouse will have to worry about in the days ahead.