Money problems can create marital problems, especially if your household debt was incurred mostly by one spouse. In other cases, a husband or wife brings existing debt into a second marriage. If household debt belongs primarily to one spouse, does the other one also have to file, and if not, will the non-filing spouse’s credit be damaged?
You are Not Responsible for Your Spouse’s Debt
One issue that frequently comes up is whether you are responsible for you spouse’s debt. As long as you did not co-sign or guarantee the debt, you are absolutely not responsible for your spouse’s or anyone else’s debt. We have heard stories of debt collectors suggesting or stating that a husband or wife has legal responsibility for his/her spouse’s debt simply because of the marital relationship. This is false. The fact that you are married to someone does not make you responsible for a contract your spouse signed with a third party.
A divorce judge, of course, can divide household debt regardless of whose name it is in but a credit card company or car lender cannot unilaterally make a spouse responsible for the other spouse’s debt.
You Do Not Have to File Bankruptcy if Your Spouse Decides to do so, but ….
Let’s assume that your spouse has incurred tens of thousands of dollars of debt and bankruptcy appears to be a reasonable solution. What does that mean to you?
First, while you cannot be held legally responsible for your spouse’s debt, you will be affected if your spouse’s wages are garnished or vehicle is repossessed. You will be impacted if there is not enough money coming into your household to pay the electric bill or buy food.
Second, you could be affected if you and your financially strapped spouse maintain joint bank accounts or jointly own other liquid assets. If your spouse is sued and a judgment rendered, the judgment creditor can go after any liquid asset they can find. It is much more difficult to get money back from a judgment creditor on the grounds that funds did not fully belong to the judgment debtor. Thus, if your spouse is being sued or has judgments issued against him, you should open a separate bank account and separate your financial lives as much as possible.
Third, your joint credit accounts with your spouse could be affected if your spouse goes into default on other accounts. Credit card companies in particular will raise interest rates on cards issued to borrowers who have gone into default elsewhere, so here, too, you should close joint accounts and open credit accounts in your name. Your credit score, by the way, should not be affected by defaults by your spouse on other accounts but you should not assume anything – check your credit reports often.
Fourth, if your spouse files, the Bankruptcy Court will require him to include information about your income, as well as all household expenses, whether unique to you or joint. The means test now used in consumer bankruptcy cases looks at household income and expenses, even if only one member of the household is filing. Thus, your unemployed spouse could be barred from filing a Chapter 7 liquidation bankruptcy solely because of your income.
So, even though you do not need to file jointly with your spouse, you will be involved, like it or not. We therefore advise married clients who want to file individually to include their non-filing spouse in the decision and bring the non-filing spouse to meet with use at some point to have his/her questions answered.