Many people view the debts you incur in marriage as joint debt. After all, what’s yours is mine, and what’s mine is yours.
While we usually think of marital debt as shared, couples today marry later in life and live together without marrying for longer — waiting nearly five years on average to get married, according to Business Insider.
Since couples aren’t sharing finances until later in life, it is easy for one person to be in debt, but not the other. Because of these changes, some people may consider filing for personal bankruptcy without including their partner. But remember, your personal bankruptcy can still impact your partner financially, legally, and emotionally.
When Couples Merge Their Debt
Debts incurred by each partner before marriage (such as student loans or credit card debt) will remain attached to the respective individual. However, the responsibility for debt incurred after marriage will be shared.
Debts you and your partner might incur after marriage include:
- Joint purchases such as a car or home
- Cosigned loans
- Debt charged to a joint or shared account
Married couples can file for bankruptcy jointly or individually. There are pros and cons to both. It mainly depends on the types of debts and unique financial situations of the couples involved.
Chapter 7 vs. Chapter 13 for Couples
Most couples file for Chapter 7 bankruptcy, which involves liquidating some assets to help pay their debts. You must pass what is known as the means test to qualify for Chapter 7 bankruptcy, which is contingent on your income being lower than the household median. You may also qualify if the disposable income you have left after paying monthly bills is below a certain threshold.
Chapter 13 bankruptcy is another option for you and your spouse. It allows you to avoid liquidating your assets while discharging some or all your unsecured debts, such as tax debt. However, Chapter 13 bankruptcy comes with a repayment plan of three to five years and a substantial hit to your credit score.
It is usually better to file either chapter as a couple if you have a lot of joint debt. If one spouse has most of the debt, it is probably wiser to file individually.
Bankruptcy Exemptions for Couples
Ohio and the federal government have a list of exemptions to protect your assets, such as real estate, cars, and household items. This applies to Chapter 7 and Chapter 13 bankruptcy.
If you file jointly, these exemptions are doubled, allowing you to keep even more of your property.
Your spouse’s assets should be protected if you file for personal bankruptcy. That means that your partner’s separate accounts and property brought into the relationship remain untouched as long as you have not added or contributed to these accounts with your own assets.
However, property acquired during the relationship can usually be divided. For example, if you bought a house together, the person who files Chapter 7 may have their share of the home used to pay their debts. Similarly, if you have a joint mortgage, collectors can still collect on that debt from the spouse after the case is closed, even though your half may have been discharged.
A bankruptcy on the part of one partner should not affect the credit score of the other. However, this is a complicated issue, and speaking with a local bankruptcy lawyer for advice is highly recommended.
Stress of Debt and Bankruptcy on Married Couples
Even though divorce rates in the U.S. are on the decline, finances are one of the most significant sources of stress for married couples. One recent study found that 54% of respondents believe having a partner who is in debt is a major reason to consider divorce.
Even if only one spouse files for bankruptcy, the process puts an emotional strain on the relationship. Although bankruptcy affects each relationship differently and much of the financial stress of debt can be eliminated by bankruptcy, most couples will have to adjust their lifestyles to deal with the new financial reality.
These changes can pressure a couple and cause anger or resentment, especially if the debt is held primarily by one partner.
It is vital to have open, honest conversations about staying organized and making it through the bankruptcy process without irreparable damage to your relationship. You will each have questions. By opening the lines of communication, you can maintain realistic expectations for how the decision will affect each of you. You will face challenges as a couple; it is important to have a realistic viewpoint.
A Bankruptcy Lawyer Can Help You and Your Spouse
If you’ve found yourself in unmanageable debt but are hesitant to file for bankruptcy, discuss it with Luftman, Heck, and Associates. Bankruptcy isn’t a decision to make lightly, but it might be the best option to improve your financial and personal health.