Will a bankruptcy affect my spouse's credit?
A spouse who does not file bankruptcy, their credit will not be affected nor will their assets. A lot of our clients will elect to leave a spouse off of their bankruptcy if they don't owe much joint debt for that reason.
Also then when can they rebuild their credit, their spouse can use their credit for the next couple of years until the debtor has an opportunity to rebuild theirs through getting new credit cards. You can also put the debtor's name on the spouse's vehicle to help rebuild their credit that way.
Sometimes it's good to leave a spouse off and it will not affect their credit.
For the most part, “No”. If your situation is such that you can file bankruptcy while your spouse does not have to, then your spouse will not be affected by your bankruptcy. The bankruptcy will not affect your non-filing spouse or show up on his or her credit report. Also, for your spouse who does not file bankruptcy, the courts cannot seize assets your spouse owns independent of you.
The first hurdle in a filing of this type is to determine how much of the debt itself is held jointly or individually. Debt held jointly must be included in a single-spouse bankruptcy. If all the assets are joint assets, it may be difficult to file bankruptcy without including your spouse. But if the debt you own alone is enough, there are some advantages to leaving your spouse off the filing.
It is much easier to rebuild your credit when your spouse is able to co-sign for you and be a part of your credit rebuilding. Bankruptcy already improves your credit by removing obligations that impact you negatively. Having a spouse who did not file bankruptcy makes the task of rebuilding credit easier.
Another hurdle in filing bankruptcy without a spouse is that your spouse’s income will still be used to calculate whether you can file. Chapter 7 bankruptcy requires a “means test” to determine if you are allowed to file or not. There are some exceptions to filing the means test (active duty military reserve or national guard, more than 50% non-consumer debt, some disabled veterans), but for the majority of people, the means test is required. The means test shows that you are not abusing the right to bankruptcy and that you do not have the “means” to pay your debt.
When completing the means test and computing your disposable income, there are places in the form to calculate for the marital adjustment deduction. This calculation takes time and is not exactly simple, but generally, any personal expenses that your spouse has and pays for can be excluded, and the deductions you make for expenses can still be deducted even if your spouse pays for them. There are other categories of deductions as well that can help you get past the means test and file a chapter 7.
And even if you do not pass the means test, you may still qualify for a Chapter 13, which is a court-ordered restructuring of your debts. Your spouse’s income may still affect the amount of your payments.
Choosing to not include your spouse on a bankruptcy claim is a strategic decision based on many points of data. A careful review of your debts, income and available expenses can make the difference. Before deciding, it may be worth talking to an attorney who can analyze your situation and find the best path forward.