You and your spouse have plenty of joint accounts. You opened a credit card account together, you bought a house, and you bought a new car. You both co-signed on everything because it made it easier to get the loans that you wanted.
Now, your spouse has decided that he or she can’t pay the money back. Your spouse is going to use Chapter 7 bankruptcy, individually, to discharge the debt. What happens to you?
There are a few things to consider. As much as you’re worried, there is some good news. Your credit score is not going to drop. Your spouse’s will, since the filing will be on his or her records for a decade, but yours stays the same. You don’t have to worry that your spouse’s decisions are going to destroy your future credit.
Now the downside: The creditors may come calling. Regulations mean they can’t go after your spouse once the bankruptcy filing is complete. Since you co-signed, though, they can still come after you. They may still want payments on that credit card account, monthly mortgage payments, and payments for your auto loan.
Obviously, this can put you in a tough position. While you may have been happy to co-sign initially, since you’d both be contributing, you may not be able to afford to make all of those payments entirely on your own.
Some experts warn that co-signing on anything, even with a spouse, is dangerous. This is one of the reasons why. It’s important to know how bankruptcy works and what the impact will be, both for those who file and anyone financially connected to the filing.
Source: Mint Life, “What Happens to My Debt If My Spouse Files for Bankruptcy?,” John Ulzheimer, accessed Feb. 03, 2017