Introduction
Your wife is facing serious financial difficulties and is considering bankruptcy. You wonder how her credit problems will affect your credit, as well as the effects there might be on your future financial prospects as a couple. Each situation is unique; however, there are some consequences that are commonly experienced by couples when one partner declares bankruptcy.
Marriage and Credit
You and your wife are married, but your credit reports are not. Even after you’re married, each partner retains a separate credit report and credit score from each of the three major credit reporting bureaus: Equifax, Experian and Trans Union. Any credit transactions your wife may have made before you were married should have no effect at all on your credit report; the reverse is also true. However, if you have made joint transactions, such as purchasing a home together, that transaction and your payment history would be reflected on each partner’s credit report.
Bankruptcy Discharge Consequences
Bankruptcy discharge means that the petitioner is no longer financially responsible for any obligations that are included in the bankruptcy petition. This means that your wife’s separate transactions, such as credit card bills in her name alone, would go away, with no affect on you or your credit. However, if you were a co-signer or a joint account holder to any of your wife’s financial obligations, her discharge could mean that the responsibility for paying those bills would revert to you. If you failed to satisfy those obligations, there could be detrimental consequences to your credit report and your credit score.
The situation becomes more complicated if you live in one of nine community property states, however. Depending on the nature of the property involved and the laws of your state, property that either you or your wife purchased separately after you married may be considered community property. Community property is often included in the bankruptcy estate, which would be subject to liquidation if your wife files Chapter 7 bankruptcy.
Future Credit
A discharged bankruptcy can remain on your wife’s credit report for up to 10 years. Her poor credit would likely make it difficult or impossible for her to obtain credit for major purchases such as a house on her own for several years. If you and your wife apply for credit together, lenders many lenders will consider both scores together, with your wife’s poor credit actually carrying more weight. This may result in your application being declined, or the merchant or lender may offer you less than favorable financing terms.
Alternate Strategies
The solution to your wife’s credit dilemma is to improve her credit, which will take time. She might begin by obtaining a secured credit card, making sure she makes all the payments on time. In the meantime, if your income is sufficient and your credit is excellent, you may be able to obtain favorable financing terms for major purchases by applying based on your credit alone. If you purchase a house using this strategy, you can put your wife’s name on the title, but only your name would be on the loan document.
For Further Reading:
· Austin, Texas, Board Certified Bankruptcy Lawyer: Joint Bankruptcy Petition austinbankruptcyattorney.com/?page_id=39
· Bankrate.com: Can You Divorce Your Spouse’s Debt? bankrate.com/finance/debt/can-you-divorce-your-spouse-s-debt.aspx
· Bankrate.com: When Good Credit Marries Bad bankrate.com/brm/news/debt/20060728a1.asp
· Bills.com: Bankruptcy Questions & Answers
bills.com/bankruptcy-questions-answers/#co-debtor
· CNN Money: Honey, Your Credit’s Bringing Me Down money.cnn.com/2002/03/11/pf/banking/q_spousescore/index.htm
· EscrowHelp.com: Do I Live In a Community Property State? escrowhelp.com/articles/20000114.html
· Internal Revenue Service: Community Property irs.gov/publications/p555/ar01.html
· Kiplinger: Marriage and Your Credit Score kiplinger.com/columns/ask/archive/2007/q0723.htm
· LenderMark.com: I Have Bad Credit But My Spouse Has Good Credit lendermark.com/i_have_bad_credit_but_my_spouse_has_good_credit.htm
· VA Loans Insider: What Happens When Your Spouse Has Bad Credit veteransunited.com/valoans/what-happens-when-your-spouse-has-bad-credit
· The Free Legal Dictionary: Community Property
legal-dictionary.thefreedictionary.com/Community+Property
· MyFICO: Marriage and Credit — Tying the Knot In More Ways Than You Might Think!
myfico.com/crediteducation/questions/marriage-and-credit.aspx
· MyFICO: What’s in Your Credit Report? myfico.com/CreditEducation/InYourReport.aspx
· MyFICO: What’s in Your FICO Score myfico.com/CreditEducation/WhatsInYourScore.aspx
· MyFICO: What’s Not in Your FICO Score myfico.com/CreditEducation/WhatsNotInYourScore.aspx
· VA Loans Insider: 4 Simple Ways to Boost Your Credit Score veteransunited.com/valoans/4-simple-ways-to-boost-your-credit-score