I'm married. Will filing for Chapter 7 bankruptcy affect my spouse?

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If you’re filing for Chapter 7 bankruptcy and your spouse is not, you may be wondering whether they are going to be affected. The short answer is that if your debts are separate, their credit will not be impacted. Similarly, most debtors who own property that is worth less than $10,000 total are able to keep all of their assets because they are saved through exemption laws.

What if I share debts with my spouse?

If you and your spouse are on a shared account, then only your obligation to pay the debts is erased. Creditors will still be able to come after your spouse for the debts. Your bankruptcy may also show up on your spouse’s credit report, although it should not affect your spouse’s credit score.

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What if we want to apply for joint loans or credit accounts together in the future?

You and your spouse will still be able to apply for joint loans or credit accounts in the future. But your bankruptcy may impact your ability to attain a loan together. As we mentioned in our article on credit scores, however, most people with poor credit who file for bankruptcy see their credit scores increase when compared to people with poor credit who remain in debt.

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What happens to our assets after bankruptcy?

If your assets are joint, but you do not own much property, you and your spouse will be able to keep your property due to exemption laws. For most debtors, if they own less than $10,000 worth of property with their spouse, they will be able to keep all of their property. If you or your spouse owns a home, but the house is worth less than the “homestead exemption” limit in your state, you should also be able to keep your house. The homestead exemption is a law that allows debtors to keep their homes if their homes are worth less than a certain amount.

It gets trickier if your spouse owns property that is worth more than what you’re able to keep during your bankruptcy. Depending on where you live, any property that your spouse purchased during your marriage may be considered to be joint property, even if your spouse purchased the property with a separate financial account. This rule applies in “community property states,” which include Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin. In these states, both spouses have joint and equal ownership over most property acquired in the marriage even if only one spouse is on title. Debtors not located in one of these states generally do not have to worry about the trustee coming after their spouse’s property during a bankruptcy, even if the spouse owns property worth more than what the exemptions permit.

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Upsolve is a 501(c)(3) legal aid nonprofit that started in 2016. Our mission is to help low-income Americans in financial distress get a fresh start through Chapter 7 bankruptcy at no cost. We do this by combining the power of technology with attorneys. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have mission-driven funders that include the U.S. government, former Google CEO Eric Schmidt, and private charities.

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