Getting married means starting a new life together with your spouse. However, if you have tons of debt, and have filed or are considering filing for bankruptcy, you're also bringing a financial burden into the marriage that your fiancée should be made aware of. Filing for bankruptcy before marriage can help to lessen the impact on your fiancée, and making smart financial decisions before and after marriage can also help mitigate the damage.
Filing bankruptcy allows a person to discharge or restructure debts.
Chapter 7, known as liquidation, is the option that many with lots of unsecured debt, such as credit card or payday loan debt, file. Assets are sold to repay creditors, and debt is discharged. Chapter 7 affects a credit history for 10 years.
Chapter 13, known as debt adjustment, allows debtors to restructure their debts in order to repay some or all of their obligations in a three to five year period. Other debts, such as mortgages or car payments, can be adjusted to allow for a longer repayment period. Chapter 13 stays on a credit report for seven years.
Bankruptcy and Marriage
Dr. Don Taylor, Ph.D. and C.F.A., writing for Bankrate.com, advises readers that anyone considering bankruptcy and marriage should file bankruptcy first to prevent harm to a potential spouse's credit report and to their ability as a married couple to gain new credit during the period of time the bankruptcy stays on the filer's credit history.
Filing prior to marriage also allows a period of time to get credit back on track before entering into marital finances. Although a bankruptcy stays on the filer's credit report for up to 10 years, it may be possible to begin rebuilding credit in three or four years after satisfying all court-ordered obligations.
Filing bankruptcy prior to marriage is especially important if a person lives in a community property state, Dr. Taylor advises.
In states that recognise community property laws, any property or debt that either party brings into the marriage is considered marital property. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are all community property states.
For newlyweds in community property states, any credit obligations either party has at the time of the marriage are assumed by the spouse, as well, meaning that a spouse's credit can take a nosedive when the other person is up to his ears in debt.
Although filing for bankruptcy prior to marriage lessens the chance that a person's fiancée will be swept into a financial hurricane, Dr. Taylor warns not to assume that the slate is clean, explaining that ramifications of bankruptcy will affect a marriage. He states that credit should be kept separate to prevent a lowering of the other person's credit rating, adding that for loans requiring both incomes for qualifying, the other person's name should appear on the application first.
Even if your bankruptcy does not have negative financial ramifications for your fiancée's credit, the habits that landed you in bankruptcy could if you do not learn to manage your finances and work with your future spouse to determine how you will handle your finances jointly.
Consumer Credit Counseling Service recommends that you and your fiancée discuss your finances frankly before marriage, revealing any debts or bad financial decisions and deciding how you will handle your finances in your marriage. Consulting a financial adviser or a credit counselling service can help you to create a budget and set financial goals.