Getting married is one of the most exciting times in most people’s lives. You get to tie the knot with the love of your life and live happily ever after. But if you’re deep in debt with a strong possibility of declaring bankruptcy, you’ve probably thought hard about how your financial situation will affect your marriage.
One pressing question you will need to answer is: should I file for bankruptcy before or after marriage? Well, the answer to this question depends on the peculiarities of your situation. That’s why we’ll explore both sides of the coin.
How Marriage Affects Debt
Before you say, “I do,” it’s important to know how your debt will affect your partner and vice versa. First off, any debt you incur before marriage will remain yours, even after marriage. The only exception is if your partner was a cosigner to that particular loan. But this doesn’t have anything to do with marriage. If it were your mother or friend that co-signed for the loan, they’ll equally be responsible for repaying.
But once you get married, you and your partner will be equally responsible for the debt you incur for the benefit of the marriage. For instance, taking out a mortgage. Everything else is mainly determined by the state you live in.
In a community property state like California, you are also responsible for the debt your spouse incurs, even if you weren’t aware of it. However, in a common-law state like Iowa, you will only bear shared responsibility for debts that benefit the marriage or has both of your names as co-signers. You won’t be responsible for the personal debt of your spouse.
However, this doesn’t mean their debts won’t affect you. If your spouse has poor credit due to bad debt, you might find it difficult to secure a mortgage, car loan, or any other loans better suited for cosigning spouses.
When Should I File For Bankruptcy Before Marriage?
If you have an unmanageable amount of debt and your spouse doesn’t, then you should file for bankruptcy before marriage. That way, you can protect the financial health of your spouse. If you don’t, filing for bankruptcy after marriage might be difficult. Why? Because total household income is taken into consideration when conducting bankruptcy means test. If the household income left after living expenses is above the threshold, you might not qualify for bankruptcy. That may put your spouse in a difficult situation, where they have to pay for the debts you incurred before marriage.
But by filing for Chapter 7 Bankruptcy before marriage, you get to clear off parts of your debts while the remaining unsecured debts are wiped off. While your credit will take a major hit, at least you know you’re heading into the marriage without being too much of a burden for your spouse.
When Should I File for Bankruptcy After Marriage?
If you and your spouse are entrenched in debt, with a strong likelihood of going bankrupt, then you should both declare bankruptcy after marriage.
For one, a joint bankruptcy petition allows you to save money in terms of paying for only one court filing fee, as well as legal fees. Moreover, you’ll save time on meetings with creditors and trustees.
However, it is important to note that if you or your spouse has significant nonexempt property assets, they’ll be up for sale to pay part of your debt to creditors. If that’s the case, filing for bankruptcy individually might help protect those assets.
You might be thinking, “Wait a minute, can I file for bankruptcy individually after marriage?”. Thankfully, there’s no law stopping you from doing so.
How Bankruptcy Affects Credit
A Chapter 7 Bankruptcy will stay in your credit report for the next ten years, while Chapter 13 will stay for only seven years. If you file for bankruptcy before marriage, it will reflect only on your credit report. The same is true if you decide to file individually after you’re married.
But again, even if it doesn’t reflect in your spouse’s credit report, that doesn’t mean your spouse won’t be affected. If you and your spouse decide to secure a mortgage loan, you might have access to only loans with high-interest rates and unfavorable terms.
On the other hand, if you file for a joint bankruptcy with your spouse, then both of your credits will take a serious hit. This may even make it more difficult to secure joint loans with good terms.
As you can see, whether to declare bankruptcy before or after marriage is dependent on several factors. That’s why it’s important to carefully analyze your unique situation so you can know what’s right for you.
The legalities of finance and the many regulatory factors that one must wade through makes it imperative to partner with a knowledgeable team to help guide you through the best practices. Contact us today for more information on how we can help!