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

To Her Credit columnist 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, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the 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 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

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Updated: 12-18-2018