Should I File for Bankruptcy Before I Get Married?

Making the decision to file for bankruptcy is a significant financial step, especially when marriage is on the horizon. The timing of such a filing can introduce complexity, intertwining personal financial distress with a couple’s shared financial future. Understanding how marital status interacts with bankruptcy law is essential. This article explores the financial considerations and implications of bankruptcy in the context of an upcoming marriage.

Understanding Bankruptcy and Marital Finances

Bankruptcy law provides a structured approach to addressing overwhelming debt, primarily through Chapter 7 or Chapter 13 filings. Chapter 7, known as liquidation bankruptcy, involves the sale of non-exempt assets to repay creditors, typically leading to a discharge of most unsecured debts within a few months. Chapter 13, or reorganization bankruptcy, allows individuals with regular income to create a repayment plan, typically lasting three to five years, to pay back some or all of their debts while retaining their assets.

A future spouse’s income can significantly influence eligibility for Chapter 7 bankruptcy, specifically through the “means test.” This test compares an individual’s average monthly income over the six months prior to filing against the median income for a household of comparable size in their state. If filing after marriage, the combined household income, including the non-filing spouse’s earnings, is generally considered, which could potentially push the couple above the Chapter 7 threshold and necessitate a Chapter 13 filing. However, the means test only considers the non-filing spouse’s income to the extent it supports household expenses, and adjustments can sometimes be made for their separate debt payments.

Married individuals can file for bankruptcy jointly or individually. A joint filing simplifies the process by consolidating debts, requiring one filing fee, and covering shared debts for both partners. It also allows couples to double exemption limits, protecting more assets from liquidation. An individual filing may be preferred if one spouse has more debt or to protect the non-filing spouse’s credit score and separate assets.

Debt classification as individual or joint impacts its treatment in bankruptcy. Individual debts, incurred by one person, remain that person’s sole responsibility. Joint debts are obligations shared by both individuals, such as a co-signed loan or a joint credit card. While an individual bankruptcy filing can discharge the filing spouse’s personal liability for joint debts, the non-filing spouse remains fully responsible for the entire obligation.

Impact on Your Future Spouse

An individual bankruptcy filing does not directly impact a spouse’s credit score, unless there are joint accounts or co-signed debts. If a debt is solely in the filing spouse’s name, the non-filing spouse’s credit report remains unaffected. If a joint account is involved, the bankruptcy may appear on the non-filing spouse’s credit report for that specific account, and they remain liable for the debt.

A non-filing spouse’s separate assets are protected from the filing spouse’s bankruptcy. Property owned exclusively by the non-filing spouse will not be included in the debtor’s bankruptcy estate. The treatment of assets and debts can differ based on whether the couple resides in a community property state or a separate property (common law) state.

In community property states, most assets and debts acquired during marriage are considered jointly owned, regardless of whose name is on the title or account. Even if only one spouse files for bankruptcy, all community property is included in the bankruptcy estate. Creditors may access community property to satisfy community debts, even if only one spouse files bankruptcy. Separate property, such as assets owned before marriage or received as gifts or inheritances, remains distinct and is not included in the bankruptcy estate.

In separate property states, assets and debts are considered individual unless explicitly held jointly. If only one spouse files for bankruptcy, only their individual property and their share of any marital property are part of the bankruptcy estate. This distinction offers greater protection for the non-filing spouse’s assets if debts are not shared.

A non-filing spouse remains liable for any joint debts or debts they co-signed, even if the filing spouse discharges their portion in bankruptcy. Creditors can pursue the non-filing spouse for the full amount. This liability highlights the importance of understanding all shared financial commitments when considering a bankruptcy filing.

Navigating the Timing of Your Filing

Filing for bankruptcy before marriage offers advantages. The means test, which determines Chapter 7 eligibility, will only consider the individual’s income and assets. This simplifies qualification, as the future spouse’s income will not impact the calculation. Filing pre-marriage ensures the future spouse’s separate finances are not directly involved, shielding their assets and credit history.

Waiting to file until after marriage introduces different considerations. If filing after the wedding, combined household income, including the spouse’s earnings, will be factored into the Chapter 7 means test or the Chapter 13 repayment plan. This combined income might exceed the median income threshold, making Chapter 7 more difficult to qualify for and possibly redirecting the filing to a Chapter 13 repayment plan. Joint filing post-marriage also means both spouses’ credit reports will reflect the bankruptcy.

New debts incurred after marriage, even by one spouse, can be treated differently depending on state law regarding community versus separate property. In community property states, debts incurred by either spouse during marriage are considered community debts, making both spouses responsible. In separate property states, new debts remain individual unless explicitly co-signed. This distinction influences a non-filing spouse’s responsibility for newly acquired obligations.

Open communication with a future spouse about financial situations, including any impending bankruptcy, is important. Transparency allows both individuals to understand their financial landscape, enabling informed decisions about shared financial goals and responsibilities. Discussing debt, assets, and bankruptcy implications before marriage helps establish trust and shared financial planning.

Protecting Shared Financial Futures

After a bankruptcy decision, couples can take proactive steps to protect their shared financial future. A prenuptial agreement can be a tool, particularly when one partner has pre-marital debt or assets. Such an agreement can delineate separate assets and liabilities, specifying pre-marital debts remain the sole responsibility of the incurring spouse. This can help protect a spouse’s separate assets and income from creditors of the other spouse’s pre-marital obligations, especially in community property states. However, a prenuptial agreement may not offer absolute protection from creditors in bankruptcy proceedings, as its primary legal protection applies to actions between the married couple, not third-party creditors.

Joint financial planning and budgeting are important for couples navigating the aftermath of a bankruptcy. Establishing new financial goals, creating a realistic budget, and tracking expenses can help rebuild financial stability. This collaborative approach fosters shared responsibility and can mitigate the long-term impact of bankruptcy. Developing a clear plan for managing income and expenses is a step toward financial recovery.

Building credit post-bankruptcy requires strategic effort. The bankruptcy will remain on the filing spouse’s credit report for several years (seven for Chapter 13, ten for Chapter 7), but the non-filing spouse’s credit can remain unaffected. The non-filing spouse’s good credit can be leveraged for future joint financial endeavors, such as loans or mortgages. The filing spouse should focus on re-establishing credit responsibly, perhaps through secured credit cards or small loans, and ensuring timely payments to gradually improve their credit score.

Consider opening joint accounts post-bankruptcy carefully. While convenient, joint accounts mean shared liability; financial missteps by one partner could impact the other. It is advisable to maintain separate accounts initially while focusing on individual credit rebuilding, gradually introducing joint accounts as financial stability and trust are re-established. Understanding the liability associated with shared accounts prevents future financial complications.