Marriage alone does not make both spouses accountable for debts incurred. However, when one spouse files for bankruptcy, the other invariably feels the impact of that action in many different ways--through financial loss, naturally, but also through emotional stress, reduced standard of living and decreased social image. Bankruptcy, therefore, is best approached as a mutual decision, as both spouses will be affected for a long time after the filing.
Liability
As a general rule, a person is only legally responsible for debt they personally accumulate. Liability for loans, credit cards and mortgages rests with the filing spouse, according to AllBusiness website. If the non-filing spouse is not part of the agreement between creditor and debtor, he will not become liable for that debt. This is true of debt incurred before and after the marriage starts. The non-filing spouse will be responsible for debts only if she has signed or co-signed an agreement to pay them. If the majority of debt lies with the filing individual, joint bankruptcy is not necessary, says DebtHelp website.
Considerations
Having said that however, in a marriage, what affects one affects the other, simply through living together. In the event of joint property--a principal residence, for instance--the whole property value becomes available to pay community creditors, potentially having a very negative effect on the non-filing spouse, as he will lose his home also.
Recent Changes
According to the Federal Trade Commission, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has changed the personal bankruptcy landscape. Those who plan to file for bankruptcy must get credit counseling from a government-approved organization within 180 days of their filing, and complete a debtor education course. An article in Yakima Herald-Republic cites these as a means to reduce the number of bankruptcies, under an assumption that the social stigma surrounding bankruptcy has declined such that millions of debtors now file bankruptcies of convenience. However, according to this article, it is increasing financial distress, marked by rising levels of debt, and not lax morals, that force most American couples into bankruptcy.
Effects
A bankruptcy is never easy, never convenient. The long-term effects of a bankruptcy last for seven to 10 years, says DebtHelp. In a marriage, that equates to a lot of years carrying the financial and psychological burden of a devastated credit rating. Both spouses pay a high emotional cost following the declaration of bankruptcy, in terms of diminished self-esteem, shame and financial fear.
Alternatives
Married couples considering bankruptcy have several options available to reduce debt and make their financial situation more bearable. All of these options need to be explored thoroughly before bankruptcy. A debt consolidation loan saves hundreds of dollars in interest, and debt settlement allows a couple to make one payment per month, says DebtHelp. Credit counseling is also available, and while your credit report will be flagged until you complete the program, this is still easier to recover from and faster than a bankruptcy.Marriages are best served when both spouses make sure that bankruptcy is truly their last resort.
References
- AllBusiness: Filing for Bankruptcy Without Your Spouse
- DebtHelp: Bankruptcy and Marriage: 6 Things You Need to Know
- Yakima Herald Republic: Less Stigma or More Financial Distress: An Empirical Analysis of the Extraordinary Increase in Bankruptcy Filings; Teresa A. Sullivan, Elizabeth Warren, Jay Lawrence Westbrook; November 2006
- "New Pittsburgh Courier"; The Financial and Emotional Costs of Filing Bankruptcy; Steve Rhode; April 2001
- DebtHelp: Debt Consolidation
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