You and your spouse are a united team in many ways, and the partnership created by marriage means that many of your financial and legal matters become interconnected. If one of you struggles with finances, the debt affects you both, including your spouse’s credit in Arizona. Plus, spouses may have accumulated debt as a couple, leading each of you to feel the strain of crushing debt. When you reach the point where bills are piling up and you receive threats of legal action from creditors, it may be time to look into bankruptcy.
Chapter 7 and Chapter 13 are both types of bankruptcy intended for individual files, but the rules allow for married couples to file a joint petition. They can resolve all eligible debts they hold together. However, both spouses don’t need to be parties to the case. One person could file Chapter 7 or Chapter 13 as an individual, which is a wise strategy for some cases.
Depending on how you move forward with a joint or individual bankruptcy, there could be implications for your credit ratings. The good news is that you can leverage the rules to gain advantages that extend to both of you, even when only one spouse files Chapter 7 or Chapter 13. An Arizona bankruptcy lawyer will explain how bankruptcy could affect your spouse’s credit, and some background is also informative.
Debt and Implications for Married Couples in Arizona
Bankruptcy can be complicated for spouses because of the different options available and how the variables affect the case. Generally, unmarried filers must decide between Chapter 7 and Chapter 13 bankruptcy. When you are married, you face this choice and many others that affect you individually and as a couple. To determine whether to file jointly or on your own, it is critical to consult with your bankruptcy attorney about the following factors:
- Either you or your spouse has considerable debt accumulated individually;
- Whether you have both incurred significant debt together;
- Each of your incomes may affect eligibility for bankruptcy;
- Whether you or your spouse owns a business;
- One of you filed bankruptcy in recent years, which could act to disqualify you from filing again within a certain timeframe;
- How divorce laws impact bankruptcy proceedings;
- The existence of a prenuptial agreement between you; and,
- Your spouse will receive an inheritance, large monetary gift, or award from a personal injury case.
Chapter 7 Bankruptcy Options in Arizona
As you review whether filing jointly or individually is a good fit, you need to know the details about Chapter 7 bankruptcy. With this type of case, your debts are eliminated if you qualify. You are automatically permitted to file Chapter 7 if your earnings are below the state median income level, which is important when you consider the two incomes of married spouses. It is also possible to qualify through the Means Test, which considers your monthly bills.
A crucial part of Chapter 7 cases that affects married couples is the liquidation process. The bankruptcy trustee has the authority to sell your assets to satisfy debt to creditors. However, some items are protected by law, and you can protect others through the use of exemptions. In many cases, exemption amounts double when a married couple files for bankruptcy and they are joint owners of the property. For instance, personal property is exempt up to $4,000, but spouses can jointly apply an exemption to protect up to $8,000.
Understanding Chapter 13 Bankruptcy in Arizona
The rules under Chapter 13 provide a different process for bankruptcy, but the end result is the same as Chapter 7. You discharge all qualifying debt, either your joint debts as a couple or your individual debts, upon the conclusion of your case. There are two reasons you might consider Chapter 13:
- You and your spouse do not qualify for Chapter 7 because of the income requirements. Fortunately, the only qualification for Chapter 13 is that you must have a job that provides a regular source of income.
- Together or separately, you and your spouse own considerable assets that you do not want to put at risk of liquidation. In such a case, you can file for Chapter 13, and the bankruptcy trustee cannot sell your assets.
The core of a Chapter 13 case is the debt repayment plan that you enter into as a condition to discharge debt. Your existing debts are combined into a single monthly payment, which will be an amount you can afford instead of the interest and late fees a creditor would charge. This is why you must have employment to qualify for Chapter 13. You pay the designated amount under the debt repayment plan for 3 to 5 years, at which point your case ends and your debts are eliminated.
How Bankruptcy Affects Your Spouse’s Credit in Arizona
All the choices you make and solutions you consider for bankruptcy can ultimately affect your spouse’s credit. However, there could also be no impact on the other person’s credit when you develop a solid strategy with help from an Arizona bankruptcy attorney. The decision will be up to you and your spouse on how the case will affect credit credit, but keep the following points in mind:
- If you do not file jointly, your spouse’s credit report will not reveal a bankruptcy case by you.
- Your spouse’s credit score could drop up to 200 or more points, as will yours when you file bankruptcy jointly. The exact reduction in your rating will vary.
- When your spouse does not file bankruptcy with you, he or she will still be able to take advantage of credit opportunities and lower interest rates on loans. You could gain the benefit of your spouse retaining a positive credit score.
- If you do not file jointly, your spouse could remain indebted on their share of many of the debts you hold together. This could result in a drop in your spouse’s credit in Arizona.
Types of Debt to Discharge in Bankruptcy
When you file jointly, you and your spouse can eliminate the debts that you hold individually and together. Through an individual filing for Chapter 7 or Chapter 13, you only discharge your own debts. Your spouse could still be liable for their own share of debt, as mentioned above. Some of the most common types of debt that filers wipe out in bankruptcy are:
- Credit cards;
- Personal loans;
- Medical debt; and,
- Lines of credit.
These are all types of unsecured debt because there is no collateral that the lender can claim as an interest. With secured debts, you cannot obtain a discharge in bankruptcy. The lender on your mortgage may seek foreclosure because it has a security interest in your home as collateral.
In addition, there are some debts that cannot be discharged in any type of bankruptcy, including alimony, child support, some taxes, and judgments from DUI lawsuits.
Prepare for Your Meeting with an Arizona Bankruptcy Lawyer
Because it is so critical to retain legal representation for bankruptcy, married couples should carefully research potential candidates to handle a Chapter 7 or Chapter 13 case. As you work to find the right fit with a bankruptcy attorney in Arizona, make the best of your time by properly preparing for the meeting. Some tips include:
- Ensure that both you and your spouse will be present to learn about options for filing together or separately.
- Collect necessary financial paperwork, including your assets, debts, and income documents.
- Assess your goals with bankruptcy, both individually and as a married couple.
- Review your respective credit reports to obtain a current picture and uncover any mistakes.
- As you think of them, write down questions to ask your lawyer.
Steps in Chapter 7 and Chapter 13 Bankruptcy
Your attorney will go over the legal process for bankruptcy and handle all essential tasks, and you can count on your lawyer to advise you on decision-making at any stage along the way. Chapter 7 and Chapter 13 are definitely different proceedings, but some of the steps are similar. You can expect the following for your case:
- You must organize financial documents to be included with your bankruptcy petition.
- You must complete a credit counseling session within six months before filing.
- Upon filing your case, the automatic stay goes into effect. Creditors cannot contact you, file a lawsuit, garnish wages, or take other legal action to collect debt.
- Along with your attorney, you must attend a meeting of creditors where you will be asked about your finances and petition.
- Once your case concludes, you will receive a discharge order wiping out eligible debt.
Benefits and Rebuilding Your Credit After Bankruptcy
You cannot decide about bankruptcy without considering how it affects your spouse’s credit in Arizona, but you must also review the benefits. Bankruptcy offers a fresh start, clearing poor financial information out so that you can access opportunities that are not available to those with debt. You can also begin rebuilding credit by paying bills in full and on time, and it is possible to obtain a secured credit card to improve your score. Eventually, you will qualify for credit at reasonable terms and will enjoy solid financial footing.
An Arizona Bankruptcy Attorney Will Advise You on Details
If you are married and considering bankruptcy, you need to make it a priority to retain legal counsel for assistance with your case. There could be effects on your spouse’s credit in Arizona, and you need to minimize those that could reflect negatively. To learn more, please get in touch with DebtBusters by calling (866) 223-4395 or checking out our website. We can schedule a free consultation at our offices in Scottsdale, AZ.
Related Content: How Does Bankruptcy Work in Arizona?
