Sometimes New York bankruptcy debtors don’t file with their spouses, but when they do they (or their spouses) wonder how the bankruptcy will affect their non-filing partner’s access to credit or FICO scores. It’s an understandable sentiment because credit scores are both important and not important: It’s good to have high ones, but one’s life isn’t ruined if it’s mediocre or even slightly less. Debtors with low credit scores probably have bigger problems than whether they can open a new credit line. So how does a bankruptcy affect a spouse’s credit score?
Short answer: It doesn’t.
The longer answer: It can if the spouses co-signed any debts in the bankruptcy, but it shouldn’t.
For the most part, debtors asking this question are concerned that the credit-reporting agencies subtly apply their bankruptcies to their spouses’ credit scores. Fortunately, there isn’t a trick in the FICO formulas that punish spouses for filing bankruptcy.
When the spouses co-own debts, however, then bankruptcy can affect their credit scores. A debt is jointly held if both spouses signed the credit-card applications or financing agreements. For credit cards, sometimes one spouse signs the agreement but orders a card in the other’s name. In these circumstances, the non-signing spouse is not a party to the account, so his or her credit score won’t be affected if that account goes into bankruptcy, so debtors and their partners need to know which situation they’re in. (Actually, all this is true for non-married people too.)
The reason non-filing co-signers should be alert is that sometimes the creditor will note that the debt is in bankruptcy, and then the credit-reporting agencies will apply this notation to both spouses’ credit scores. Whether this notation actually affects a credit score is a separate topic. However, one course of action non-filing spouses can take to remedy this is contacting the credit-reporting agencies directly and disputing the notation. The possibility that there’re errors or adverse notations is a compelling reason for non-filing spouses to order their own credit reports before or during their spouses’ bankruptcies.
Co-signers should also be aware that a debt discharged by their partners does not do so for themselves and that they are obligated to keep the debts current. Obviously, after the bankruptcy the debtor can help the non-filing spouse repay the debt, but there is no legal obligation to do so.
If you are considering filing bankruptcy and want to ensure that your spouse’s interests are protected, then talking to an experienced New York bankruptcy lawyer can help you strategize your best course of action.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.