ADVERTISEMENT

Can one spouse's bankruptcy destroy the other's credit?

By

To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets.
Ask Sally a question, or read her previous answers in the To Her Credit archive
Question for the CreditCards.com expert

Dear To Her Credit,
Between the two of us, my husband and I have a lot of debts. Actually, my husband is the one with the debts -- my name is only on my house, a car and a phone bill. I was not even aware he had so much debt until he just came to me and said he needs to go bankrupt.

These debts are because we adopted a child from Russia five years ago, and then we had to repair our house from two hurricanes that insurance really did not cover.

If my husband goes bankrupt and I don't, will it hurt my credit? I have great credit in my name.  -- Linda

Answer for the CreditCards.com expert

Dear Linda,
Wow, you've had a lot going on with a new child and two hurricanes!

With the debt in his name and the assets in yours, it seems like a slam dunk to let him go bankrupt while you keep the house and other assets and your pristine credit record. There's a catch to that plan, unfortunately.

If you are in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin), you may be liable for those debts even though your name is not on them. In that case, if he files for bankruptcy and you don't, the creditors will just try to collect from you instead of from him.

Even if you don't live in a community property state, you may still be liable for some of the debts. Some of them may have been for your expenses. For the expenses of fixing your house, the contractors may have placed liens on it. In addition, the courts have some discretion deciding which debts to discharge (get rid of), and laws vary by state. It can be very complex. People are often surprised when they get through with bankruptcy and find they still have debts. If they had known how many debts would not be discharged, they might have skipped the expense, trouble, and (yes) humiliation of a bankruptcy.

Before either of you decide to file for bankruptcy, seek two kinds of help: professional legal help and credit counseling. A legal professional can tell you if one or both of you filing for bankruptcy will solve the problem. (If most of the debt is attached to your house, chances are good that it won't.) A credit counselor can do wonders for helping you and your husband see where you stand financially and make a plan to get where you want to go. Credit counselors have seen worse situations than yours, and you might be surprised at how helpful they can be! Just be sure to use an accredited, nonprofit counseling association. See the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies for credit counselors in your area.

There's one more problem with filing for bankruptcy. Bankruptcy hurts innocent people. The local contractors who repaired your house paid for materials, labor and payroll taxes. They may have turned down or postponed other customers' orders to work on your house. When customers file for bankruptcy, small contractors may not be able pay their bills. Then their suppliers and employees can't pay theirs. In bankruptcy, debtors have no say over which creditors get paid first or at all. The only way to stop this domino effect is for individuals -- even those hit by tragedies such as hurricanes -- to buy what they can pay for and pay for what they buy.

In theory, one spouse can go bankrupt while the other spouse keeps a pristine credit history. In practice, as you can see, it's not so simple. Make sure your husband knows that what he does really will affect you, and get all the facts before the two of you make a decision.

See related: Bankruptcy filings return to pre-reform-law pace, 5 post-bankruptcy myths, Considering bankruptcy? Use the 'divide by 60' test, What to expect when filing for bankruptcy

Meet CreditCards.com's reader Q&A experts

Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.

Published: July 31, 2009


Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.




Follow Us


Updated: 09-27-2016


Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.


ADVERTISEMENT