If I file for bankruptcy, how will it affect my spouse?
Hopefully, it won’t affect your spouse at all. Your bankruptcy case is filed under your name and your social security number and only affects your credit. However, there are a lot of caveats to this.
That’s why you really, really need to talk to an attorney and disclose everything before you decide whether or not to file.
Income — Even though you’re the only one filing bankruptcy, we still need to look at household income. Your spouse’s income may push you over the brink of a simple chapter 7 case into a more complicated chapter 13. And yes, you will have to provide at least a couple of your spouse’s paystubs, or your case will eventually be dismissed.
Credit — Your bankruptcy only affects your credit. If any kind of “bankruptcy” notation shows up on your husband or wife’s credit, they need to dispute that immediately.
Prior filings — If your spouse has a prior bk, this does not affect your case (unless you filed that prior case together).
Buying a home — If you have filed bankruptcy, you will have to wait 2 years from date of discharge to buy a home under an FHA loan (in a chapter 7) or you have to show at least 1 year of consistent chapter 13 plan payments before you can get a mortgage. However, if your spouse is trying to buy a home on their own, then your bankruptcy does not affect their qualification at all (unless they’re trying to put you on the credit application).
Court — You’re the only one who goes to court. You filed bankruptcy, not your spouse.
Collections — Just because you’ve filed bankruptcy doesn’t mean that your spouse is off the hook for joint debts. If his or her name is on the debt, then those creditors will eventually sue your spouse. Your bankruptcy didn’t wipe out the debt for your spouse.
Assets — This is a big one, and it can definitely affect your spouse.
House or car — If you own a home or car together with too much equity, there is a chance that a bk trustee will want to sell off that asset and pay creditors, even if your spouse shares the title with you.
Transfer of assets — If you have transferred assets to your spouse to “hide” them from the bk trustee, the bk trustee can avoid that transfer and put them back in your name.
Bank accounts — There’s a pretty fair argument that your spouse’s bank accounts may be joint marital assets, and the bk trustee will want to look into those, and maybe even take them.
Tax refunds — The bk trustee can even take your joint tax returns, even if your spouse didn’t file. There are complicated formulas on how much the trustee can take, but it can happen.
Retirement — Retirement accounts (like 401ks and IRAs) are generally safe in bankruptcy. Your spouse’s retirement will not be touched unless you’ve done something really funky (like transferring cash to your spouse before filing bk, and then he puts it in his 401k to try to protect it).
Inheritance — Your spouse is probably safe. If her parent’s die and leave her the home, that home is only in your spouse’s name, and it will not be affected by your bk. But this one is pretty fact specific.