Tips on Navigating Marriage and Bankruptcy 

Many people look at marriage as one of the momentous events in their life. If you or your fiancee is struggling with debt and debating whether to file bankruptcy, however, your situation can easily turn into a confusing one. You might even be wondering whether it is a good idea to file for bankruptcy or get married first. While it is always a good idea to speak with a knowledgeable attorney if you are debating bankruptcy, it often helps to also consider important details about the relationship between marriage and bankruptcy.

The Two Types of Bankruptcy

An individual will generally file for either of two types of bankruptcy:

• Chapter 7. This type of bankruptcy involves the liquidation of assets and the use of the proceeds to pay creditors. Some of the types of debts that can be discharged in bankruptcy include credit card debt, medical debts, and some federal loans. Chapter 7 bankruptcy is often the ideal option for individuals with little income who will likely never be able to repay their debts.

• Chapter 13. This type of bankruptcy is best for individuals with a regular source of income and the desire to repay their debts. People who file for chapter 13 bankruptcy are often able to keep their homes and other assets. This is because Chapter 13 bankruptcy involves a three to a five-year repayment plan. After this plan is completed, any remaining debt is discharged.

Not only can a person file for Chapter 7 or Chapter 13 bankruptcy before getting married, but an individual can also file for either of these types of bankruptcy jointly or individually once they are married. One substantial factor that influences whether a person files before or during the marriage is whether that individual has any joint debt with their spouse or whether the debt is separate.

Deciding to File for Bankruptcy Before Marriage

If you have substantial debt and your future spouse does not, it is often the best idea to file for bankruptcy before getting married because it minimizes the impact on the other person’s finances. Some of the other advantages of filing for bankruptcy before marriage include:

• Credit scores are influenced by a person’s individual credit history. Getting married does not impact a person’s credit score. While pursuing bankruptcy as an individual will not impact your spouse’s credit, if you have joint debt then bankruptcy could end up influencing your partner’s credit score.
• Pursuing bankruptcy before marriage is also a good idea if one person has little to no income and the other has a significant income source. While it was not always the case, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it so that a spouse’s income must be included in the means test used to determine whether a person qualifies for Chapter 7 bankruptcy. Based on how much your partner makes, if you decide to pursue Chapter 7 once you are married, you might be viewed as making too much to meet the means test.
• Pursuing Chapter 7 bankruptcy before getting married ensures that your fiance’s assets are not liquidated or used to pay off creditors. While some assets qualify as exempt from bankruptcy, not all assets do.

Understand that if you decide to pursue bankruptcy before getting married, you should make sure that your case is fully resolved before the wedding date. Entering a marriage in the middle of bankruptcy can end up influencing your eligibility for Chapter 7 or drastically impacting the terms of your Chapter 13 repayment plan.

Pursuing Bankruptcy After Marriage

In situations in which a person and his or her fiance both have a substantial amount of debt and little income, it is sometimes a better idea to pursue a bankruptcy as a couple after marriage. If you decide to pursue bankruptcy as a couple, some important factors to remember include:

• Pursuing bankruptcy jointly allows couples to save on the costs associated with credit counseling and debt education classes as well as filing fees.
• Even though both spouse’s incomes and assets are considered when calculating the means test, this might not be much of an issue if neither spouse has a substantial or steady income source.
• California is a community property state, which means that both spouses are viewed as owning any property acquired during the marriage, despite whose name is listed on a property title. As a result, any property that a person has before marriage and any assets that a person acquires during a marriage are considered part of the bankruptcy estate. This is true regardless of whether you pursue bankruptcy on your own or with your spouse.
• If you plan on waiting until you get married to file for bankruptcy, you should take every possible measure to keep your finances separate from your spouse. This means not acquiring joint property, not opening joint bank accounts, and not taking out loans as a couple. 
• If you and your spouse file jointly for bankruptcy, both of your credit scores will be negatively impacted. This can make it difficult to buy a home, rent an apartment, purchase a car, and many other situations that depend on good credit scores. If you file separately for bankruptcy, you might decide to have the spouse who did not declare bankruptcy apply solely for loans.

Never Hide Assets

Regardless of whether you file for bankruptcy jointly or solely, it is important to never try to hide assets to friends or other family members who then hold onto these assets until the bankruptcy process has concluded. If courts discover that you were attempting to hide assets to avoid having them taken away during bankruptcy or to qualify for Chapter 7, you will likely end up facing strict penalties.

Speak with an Experienced Bankruptcy Attorney

Pursuing bankruptcy is an excellent way for someone struggling with debt to obtain a fresh start in life. If you are debating marriage as well as bankruptcy, you should not hesitate to speak with a bankruptcy lawyer who can help you evaluate what strategy works best for you. Contact attorney Melanie Tavare today to schedule a free case evaluation.