When you’re getting married, the last thing you want to talk about is each other’s financial struggles. But it’s an important topic to discuss, as your partner’s finances will become yours, and vice versa. While some debt is okay, it shouldn’t exceed 36 percent of your monthly gross income. People who have debt that’s higher than 36 percent have more risk.
If you or your partner has a significant amount of debt, you may be wondering if you should file for bankruptcy, and if so, when. After all, no one wants to start their new life out with mounds of debt!
How Does Marriage Affect Your Debt and Credit?
Before you say “I do,” you are responsible for the debt you’ve accrued over the years. After you get married, who is responsible for the debt depends on the state you live in.
If you live in a community property state, both you and your spouse have equal obligations to repay the debts you incur during the marriage. In a common law property state, only debt that benefits your marriage or has both of your names on it are shared.
New York is an equitable distribution state, meaning that if you can’t agree on how to divide your debt, the court will do it for you. The court will divide your property in a fair and equitable manner, though this doesn’t necessarily mean that it will be divided evenly. The judge will consider factors such as each spouse’s health, income and assets.
Also, since marriage doesn’t merge credit reports, yours will remain yours and your spouse’s will remain theirs. Nevertheless, if one partner has poor credit, this can affect your ability to get an auto loan or mortgage.
Should I File Bankruptcy Before Marriage?
If you (or your partner) has an unmanageable amount of debt, it’s probably best to file for bankruptcy before the marriage. You can minimize the damage to your spouse’s financial health while also setting your future on a better path.
Not to mention, filing for Chapter 7 is generally best to do before marriage because you’ll have an easier time qualifying. Once you’re married, your spouse’s income will be added to yours, and this could push you over the income limit.
Should I Wait to File Bankruptcy Until We’re Married?
If both you and your soon-to-be spouse have a lot of debt, then it may be best to wait to file bankruptcy until you are officially married. This will allow you to save on court costs and legal fees because you’ll be using the same bankruptcy lawyer in New York and filing one case.
There is one thing we’d like to point out, however. If you or your spouse has significant property assets, you may want to file bankruptcy separately to protect these assets. Otherwise, these assets will be part of the property sale.
If I File for Bankruptcy, Will this Hurt My Spouse’s Credit?
Your credit report is yours and only yours. If you file bankruptcy before you’re married, a Chapter 7 bankruptcy will stay on your report for 10 years and a Chapter 13 bankruptcy will stay for 7 years. Bankruptcy will only show up on both of your credit reports if you both file together, or both file separately.
However, your credit score will still impact your spouse and vice versa. For example, when you go to buy a house or a vehicle together, lower credit scores can lead to higher interest rates and less flexible terms. And if you both have bankruptcy on your credit reports, you may not qualify for a loan at all.
If you or your partner has significant debts that you would like to take care of before saying “I do,” your first step is to speak with a bankruptcy attorney in NY. Because every situation is different, it’s important to have an experienced legal professional look over your financial circumstances. They can determine if it’s worth filing for bankruptcy and when.
While bankruptcy may not be something you’re pleased about, it’s best to enter a new marriage with good financial health. Otherwise, it can drag down your partner’s financial and credit health and hurt your relationship. So, have an open, upfront conversation about your financial standing and schedule a consultation with a New York bankruptcy lawyer. When you have all the facts, you can make an informed decision that benefits your future – and your marriage.