If you are facing financial difficulty, you might consider filing for bankruptcy. But what if you are also planning to get married? Should you file before or after the wedding? Let's find out.
Prior to the bankruptcy law reform of 2005, your spouse's income did not affect your bankruptcy filing eligibility. Since then the law has changed. Now being married can affect whether or not you qualify for Chapter 7 bankruptcy. This has nothing to do with the impact on your credit score, which we will discuss later.
Currently, the total household income is taken into account when conducting the bankruptcy means test. This test calculates if you have enough money to repay at least some of your debt. If, for the six months before filing, you have more than $100 of income left over after living expenses, you may not qualify for Chapter 7.
If you get married before filing, both spouse's incomes are used to determine eligibility. So if you want to file for Chapter 7, it may be best to file before getting married.
Your credit rating is based on your individual credit history. If a married couple files a joint bankruptcy, then both credit ratings are affected. Declaring bankruptcy as an individual should not directly affect your partner's credit, whether married or not.
However, if you apply for a joint loan or credit, such as a mortgage, then either spouse's bankruptcy history will affect the chances of receiving the loan. The actual timing of your marriage won't affect this specific situation significantly.
Remember, if a person's credit rating has been affected by their spouse's individual bankruptcy, it could be a filing error. If this is the case, it should be corrected as soon as possible.
If both partners are facing significant debt, then it might make sense to file for bankruptcy jointly after marriage. Filing jointly cuts down on costs since only one case is filed.
If you and your partner choose to file separately before marriage, all court costs and legal fees will be duplicated. Also, dual bankruptcies mean twice as many meetings with trustees, creditors, etc.
Keep in mind, however, that if one spouse has significant nonexempt property assets, these will become part of any joint bankruptcy sale. Here it might be wise to file as an individual to protect these assets.
Finally, remember that filing together can affect bankruptcy eligibility. So make sure you check your numbers before taking your vows.
If you or your partner decide to file for bankruptcy first, wait until the bankruptcy judgment is final before tying the knot. By waiting, you'll know exactly which debts have, or have not, been discharged. It might also make sense to maintain separate bank accounts at least until the bankruptcy process has been finalized. This avoids the commingling of funds which could impact future undischarged debt payment decisions.
Filing for bankruptcy may be the best way for a person to get back on track financially. If you are considering marriage at the same time, carefully weigh your options before following through on either of these major life events.
Financial differences are often a source of marital tension. In every case, it makes sense to address all money matters sincerely and openly with your partner. Also, take full advantage of any available financial or credit counseling included in the bankruptcy process to help prevent future problems.