Q&A: If I file bankruptcy, how will it affect my spouse?

It depends on whether you live in a community property state

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Question

Dear Credit Guy
I live in Washington state. All my debt is credit card debt, and I’ve used cards in my name only. I’m over my head.

I have not used any of my husband’s money for this debt. If I filed for bankruptcy, would it hurt my husband or would he have to help pay? Is there any help for me? – Lois

Answer

Dear Lois,
Being overwhelmed by debt is hard. I understand the impulse to file for bankruptcy and be done with the debt once and for all.

Bankruptcy exists for good reasons, but it also is the last resort for good reasons, not the least of which is the damage it will do to your credit report and credit score. I would recommend you examine all of your options before making filing for bankruptcy.

Washington is a community property state. Generally in a community property state, all money earned and property bought during the marriage is considered owned by both parties. This usually includes debts, but it also is true that a person can file for bankruptcy individually even in a community property state.

Seek credit counseling first

Your question about how this might affect your husband is one that you will need to clarify with your attorney should you decide to move forward with a bankruptcy to discharge this debt. I am not an attorney and cannot give you legal advice.

Before you file for bankruptcy, I would strongly recommend that you contact a qualified, nonprofit credit counseling agency. One of the bankruptcy pre-filing requirements involves obtaining a certificate of successful completion of credit counseling with a government-certified counseling agency within 180 days before you file.

I believe it is a good idea to talk to a counselor before you make any decision regarding bankruptcy. Credit counseling is a free service. By choosing an approved credit counseling agency, you will meet the counseling requirement if you choose to move forward with the bankruptcy. You will then be required to take a post-bankruptcy education course, which will involve a fee.

 

Video: Chapter 7 vs. Chapter 13 bankruptcy

Considering the whole financial picture

When you call for your initial credit counseling, tell the counselor that you are considering bankruptcy.

The advantage of calling an agency first is that your counselor will look at your whole financial picture to go over all of your options.

The counselor will review the type of bankruptcies you may qualify for. Generally, this will be one of two possible options:

  • Chapter 7, which discharges all debt, but could also be the most damaging to your credit down the road.
  • Chapter 13, which involves some repayment, usually under a three- to five-year plan that is supervised by the bankruptcy court.

A third option: debt management plan

You also may be a good candidate for a debt management plan, a formal agreement between a debtor, a credit counseling firm and creditors that could reduce your interest rates and your monthly payments to something you can afford. These plans are designed to get you out of debt in five years or less.

While a debt management plan won’t be factored in your credit score, lenders may perceive a DMP negatively and your credit may take a hit. However, at the end of the program your debt will be paid off and, more importantly, you will not have a bankruptcy on your credit report.

A Chapter 7 bankruptcy stays on your credit report for 10 years and a Chapter 13 for seven years. Remember that your credit report is not just for obtaining credit; it also can be accessed by landlords, insurance companies and employers.

CreditCards.com has more information on key factors when considering bankruptcy, and how to find a government-approved credit counseling agency that will hopefully provide further guidance.

Take care of your credit!

See related: 8 myths surrounding bankruptcy, Save money and your score with a DIY debt management plan

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Updated: 11-20-2017