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Bankruptcy can be stressful, emotional and even cause feelings of insecurity and shame. But it shouldn't stop you from getting married or from building a future with your partner.
One spouse's bankruptcy won't ruin the other's credit. In fact, their credit history doesn't appear on yours at all. However, bankruptcy can complicate joint financial decisions, such as buying a house, so it's important to understand exactly what it will mean for your marriage.
Will Marrying Someone Who Filed Bankruptcy Affect Your Credit?
The short answer is no. Marrying someone doesn't merge your credit report with theirs. You'll both maintain credit histories and credit scores independent of one another, and derogatory marks on an account won't affect the other spouse's credit unless that account is held jointly.
Their record will not be added to yours or directly impact your credit score—and vice versa. In fact, your marital status will not even show up on your credit report, nor will it affect your credit scores.
Spouses are also not responsible for individual debts their partners incurred before marriage. If you live in a community property state, however, you will have an equal obligation to repay any debt your spouse incurs while you are married. Even if your name isn't on the account, creditors can pursue your assets in debt collection efforts.
Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Married couples in Alaska can opt in to community responsibility.
If you're concerned about your joint financial prospects, talking to your partner can help. Ask them to explain the context of their bankruptcy. Did they suddenly lose their job or become ill, causing them to fall behind on payments? Or did they get in over their heads due to poor money management? In the latter case, invite them to share what they learned from the experience and how their money habits have changed. This can be a great opportunity to discuss your different approaches to money and develop financial goals and habits for your marriage together.
How Will a Bankruptcy Affect Applying for Future Credit?
Your spouse's bankruptcy could affect any joint financing you pursue during your marriage. Buying a house is one of the biggest purchases you'll make as a couple, and you may face some hurdles if your partner has bad credit or has been through a bankruptcy. When a couple applies for a home loan, the lender will generally focus on the middle, or median, score for both partners and use the lower of the two to determine loan terms. If your partner's score is low due to bankruptcy, it may mean paying a lot more in interest or not being approved for a mortgage at all.
Bankruptcy's effect on your spouse's credit will also affect the likelihood that your spouse can qualify for a loan on their own, and the interest costs they'll pay if they are approved. If you're willing, you can cosign a loan for them, which can help them qualify for lower rates. As a cosigner, you're financially responsible for paying back the loan if they're unable to.
Depending on the type of bankruptcy they filed, that event will stay on your spouse's credit report for either seven or 10 years. There are ways they can raise their score and increase your opportunities as a couple even before a bankruptcy is removed from your spouse's reports.
Your partner should make sure all bills are paid on time going forward. That includes rent, utilities, credit cards, student loans and any other debts. Even if you can only pay the monthly minimum, on-time payments are crucial to achieving and maintaining good credit.
Is It Better to File Bankruptcy Before or After Marriage?
The big question to ask here is whether you both have substantial debt that can be discharged in bankruptcy. If you have no debt, or you have some debt with manageable payments, you likely aren't planning to file for bankruptcy. In that case, you may want your soon-to-be spouse to file before you get married.
If your future spouse's debt has you worried, it may be best for them to deal with those accounts before you are legally bound to one another.
If you also carry high debts and plan to file bankruptcy, filing together after you're married may be the better option. That way you can file one case jointly and reduce the amount of attorney and court fees associated with the case.
Bankruptcy is a complicated process, though, so if you're not sure how to proceed, you can always consult an attorney or financial advisor. Whether you file before or after you're married, an expert advisor can help you strategize based on your shared and individual assets.
If you find yourself in the unfortunate situation of needing to file bankruptcy and also getting divorced, there's no clear answer on which should come first. You may want to file bankruptcy first to discharge certain debts that will otherwise continue to be your joint responsibility after the divorce. But again, an attorney or financial advisor can help you decide the best course of action for your situation.
How to Build Back Credit After a Bankruptcy
A bankruptcy can stay on a credit report for seven or 10 years, depending on the type of bankruptcy that's filed. A Chapter 13 filing stays on a credit report for seven years, while Chapter 7 falls off after 10. Once that time is up, a new credit score will need to be requested in order for the impact of its removal to be seen.
There are other ways someone can increase their credit score after bankruptcy as well:
- Create an emergency fund. Having an emergency savings fund with three to six months' worth of expenses in cash can help you navigate job loss or illness without going into debt.
- Avoid taking on new debt. Create a budget and follow it closely each month. Living within your means will help you stay out of debt and steer clear of high-interest credit cards or loans that become difficult to repay.
- Become an authorized user. Someone with a bankruptcy in their past may not be able to get approved for loans and credit cards that help rebuild their credit history. Being added as an authorized user can help, however, since the positive payment history the primary account holder has made will be added to the authorized user's credit file.
- Make all payments on time. Every payment matters, no matter what type of account you have. Set reminders for yourself so you don't miss deadlines or enroll in autopay to avoid late fees and dings to your credit score.
Building your credit after bankruptcy takes time, but it can happen if you and your spouse are committed to that goal. You can also sign up for free credit monitoring through Experian, which will send you alerts when your score changes and allows you to check your Experian credit report monthly for free. Tracking your progress can give you the motivation to stick with your new habits and achieve good credit once again.