Having a spouse does not automatically mean a bankruptcy affects both of you. However, if you and your future spouse have joint debts then there are multiple factors to consider such as whether one or both of you need to file, what your future plans are and if you want to conserve costs to file.
Written by Kristin Turner, Harvard Law Grad.
Updated August 7, 2020
Getting married is exciting. Couples look forward to sharing their lives. However, if you are worried about the debt you owe now and how it will affect your future spouse, getting married may make you feel nervous.
Whether you file before or after you get married, filing for bankruptcy can help you start off your marriage with a clean slate.
What is Chapter 7?
Deciding whether to file for Chapter 7 bankruptcy relief can be difficult. If you cannot afford to pay a Chapter 7 bankruptcy attorney, it can be harder to decide what to do to get out of debt.
Chapter 7 is for low-income individuals who do not have money to pay their bills. Since Chapter 7 is designed to help low-income people, you have to be below the Area Median Income of your state in order to file under Chapter 7. Said differently, if you make too much money, you may not be able entitled to a bankruptcy discharge under Chapter 7.
So, how exactly does Chapter 7 work?
Most people who file Chapter 7 get rid of all their unsecured debts.
An unsecured debt is money that you owe, but the creditor (the person or company you owe money to) does not have a lien on your property. A lien gives the creditor the right to take your property if you do not pay the payments on time.
Unsecured debts you can get rid of by filing a Chapter 7 case include:
Credit card debt
Payday advance loans
Some old income tax debts
Old utility bills and rent payments
Most judgment debts (judgments are the result of a lawsuit)
While Chapter 7 bankruptcy can erase most types of unsecured debts, there are some debts that it can’t get rid of. These debts include: alimony, child support, and student loans.
Protecting Your Property
Because Chapter 7 debtors do not have money to pay their debts, the Chapter 7 trustee looks at their property to decide if the property has any equity that the trustee can liquidate to pay unsecured creditors. In other words, the Chapter 7 trustee sells property and uses the money to pay unsecured creditors like credit card companies and health care providers.
The good news is that most of the Chapter 7 cases filed in the United States are no-asset cases. In a no-asset Chapter 7 case, the debtor does not lose any property because they don’t own any expensive property in the first place. Even more, almost all day-to-day property is protected by bankruptcy exemptions. So, you can hang onto things like household goods, cars, and even cars depending on the state where you live.
How does Chapter 7 bankruptcy impact my credit score?
You may want to file a Chapter 7 bankruptcy case to get rid of old debts you cannot pay. Many debtors see their credit score improve faster when they get rid of old debts instead of waiting years for the debts to fall off their credit reports.
That said, filing bankruptcy will lower your credit score temporarily. The decrease in your credit score depends on several factors, including your credit score before filing for bankruptcy relief. The thing to remember is that the decrease is temporary and bankruptcy gives you the fresh start you need to improve your credit rating.
How are my credit score and my spouse’s credit score related?
Having a spouse does not automatically mean your credit scores affect each other. When you get married, your spouse’s credit score will not go down if you have a lower credit score. Each person’s credit score is based on that person’s credit history. Joint debts are the exception to this.
Upsolve Users ➤ Favorite PostsGroup · 2.1K Members
Upsolve User · April 30, 2020
My debt was discharged as of yesterday (just saw it today)! I am so excited! It’s like a breath of fresh air ☺️ Upsolve helped me discharge over $200,000 in debt. I am forever grateful for this service.
Upsolve User · June 25, 2019
I would like to say thank you upsolve I had my 341 meeting today and it was 4 minutes very easy the trustee asked me if upsolve charged me anything which I said no its a non-profit organization and the trustee said you did well and good luck to you 🤩🤩🤩 wait on my discharge
Upsolve User · July 9, 2020
The discharge finally registered on my credit report - I'm up 204 points from when I filed in February... Upsolve works!
Joint debts are debts that you and your spouse owe (or plan to owe) together. You may have co-signed for a loan or opened a credit card account together. These debts appear on both your credit report and your spouse’s credit report. If you’re filing for bankruptcy on jointly owed debts, then your spouse’s credit score could be affected.
Joint debts you took on before you filed for bankruptcy
If your partner co-signed any of your debt, your partner becomes responsible for that debt immediately when you file a bankruptcy case. If this is the case, you may be leaving your spouse on the hook for debts you both owe once you file for bankruptcy.
If your partner plans to file bankruptcy at some time, you may want to wait to file together and get rid of debts together.
Joint debts you take on after you filed for bankruptcy
If you’re planning to co-sign for a house or other property, your credit score could affect your spouse if you apply for a joint loan. For instance, if you apply for a car loan together or a mortgage to buy a house together. Your low credit score could increase the interest rate charged for the loan.
Does Filing Chapter 7 Hurt My Future Spouse’s Credit?
No, filing bankruptcy before you get married will not hurt your spouse’s credit unless you have joint debts. Your bankruptcy case will not show up on your spouse’s credit report.
However -- as we previously mentioned -- if you have joint debts, your future spouse must continue to pay the payments, or it could hurt his or her credit score. Your future spouse’s credit score would be hurt even if you never got married if neither of you pays a joint debt.
Should I file bankruptcy before or after I get married?
What Happens If I File Before I Get Married?
When you file a Chapter 7 before you get married, you can clear up your old debts. In many cases, it is better to enter marriage without the burden of debts you cannot pay.
You do not need to worry about creditor harassment, debt collection lawsuits, wage garnishments, and other forms of debt collection. Preventing debt collection efforts can be an important reason to file Chapter 7 before marriage.
A creditor or debt collector files a debt collection lawsuit when you do not pay the money you owe on an account. If you do not respond to the lawsuit, the creditor asks the judge for a default judgment. The default order (judgment) states that you owe money to the creditor.
A judgment attaches to any real estate that you own at the time of the order or future real estate you purchase. If you want to purchase a home with your spouse after you get married, the judgment would need to be paid before you could purchase the house. However, Chapter 7 gets rid of judgments. The Chapter 7 case will also prevent a creditor from filing a lawsuit to obtain a judgment against you.
What Happens if I File Chapter 7 After I Get Married?
Even if you wait until after you are married to file a Chapter 7 bankruptcy case, the bankruptcy will not affect your spouse’s credit score. Your spouse will not be responsible for your debts. Your spouse would only be responsible for joint debts that he or she co-signed with you and that you did not pay.
However, if you wait until you are married, you will need to include your spouse’s income on your Chapter 7 because the Means Test requires debtors to report household income (you might need to do this if you are living together too). The Means Test is the bankruptcy document used to decide if you meet the income requirements to file Chapter 7. Therefore, it may be best to file Chapter 7 before you are married if you think the combination of you and your future spouse’s income might prevent you from filing under Chapter 7.
What if My Future Spouse Needs to File Bankruptcy Too?
If your partner also needs to file Chapter 7, you may want to wait until after you are married. Why? Honestly, because it’s cheaper.
Filing fees. Married couples can file bankruptcy together for one filing fee. If you file Chapter 7 before you are married, your partner must pay another filing fee to file a Chapter 7 case.
Credit counseling course fees. Also, you have to pay for two credit counseling courses and two debtor education courses. The courses are required to file for bankruptcy relief. Spouses can take the classes together for one low fee. Most people finish the classes online in less than two hours.
What Happens After I File Chapter 7?
You file. When you file your Chapter 7 bankruptcy petition, a few things happen: the automatic stay is triggered, the court assigns a case number, and a Chapter 7 trustee is assigned to your case. Creditors cannot try to collect debts without permission from the court.
Your creditors are notified. The court sends a notice to all your creditors telling them the date of your bankruptcy hearing. You receive a copy of the notice too, so that you know when to go to court.
You have a bankruptcy hearing. Your bankruptcy hearing or First Meeting of Creditors is scheduled within 30 to 45 days after your paperwork is filed with the bankruptcy court. The hearing is about five to ten minutes long. The Chapter 7 trustee asks questions about the paperwork you filed with the court. In most cases, creditors do not show up to ask questions.
You complete the second credit counseling course. You must complete your second bankruptcy course within 60 days from the original date set for your bankruptcy hearing.
Your debts are discharged. If your case is a no-asset case and you filed the certificate for your second bankruptcy course with the clerk of court, you should receive your bankruptcy discharge (which closes the case)within in about three months after the First Meeting of Creditors. You will not need to pay any of the debts that were discharged in your bankruptcy case.
Filing bankruptcy is a big decision, but it can make a big difference in your life. Through bankruptcy, you can get out of debt and get back on your feet. Whether you file bankruptcy before or after getting married depends on your unique situation.
If you are still unsure what you should do, you can contact a bankruptcy attorney to discuss your case.