Category Archives: Credit and Filing Bankruptcy

If I File Bankruptcy Will It Affect My Spouses Credit Score?

By Ryan C. Wood

As with many questions there is a short answer and a long answer.  The simplistic short answer is no.  If you file bankruptcy it will not affect your spouse’s credit score.  When you get married your credit profile is not linked to your spouses.  So, no, if you filed bankruptcy in the past it should not negatively affect your new spouse’s credit score.  Some believe that when you get married the credit profiles are linked and the credit score is averaged between the two spouses.  No, that is not correct.  As a bankruptcy attorney I get asked this sort of question over and over again.

The Long Answer Is Yes Your Spouses Credit Matters

The long answer is yes your spouse’s good or bad credit will affect your ability to obtain credit or loans in the future; generally.  Generally when a married couple applies for a loan for a home a joint application must be filed and this is when both credit profiles are looked at.  This is not an absolute though.  You are not required to apply for a home loan or vehicle loan as a married couple though.  I have no doubt a mortgage lender or broker would be happy to just use the spouse with the highest credit score to qualify for a home mortgage and charge an interest rate 1 – 3% over the market rate at that time.  If you do apply as a married couple most lenders will in fact average or take the lowest middle credit score for spouses applying for a home mortgage or other large credit purchase.

All Community Assets and Community Income Must Be Listed

If you are married you do not have to file bankruptcy jointly with a spouse.  Here in California as a community property state all community assets and all community income must be listed in the petition for bankruptcy protection filed for the filing spouse though.  The community is also getting a discharge of the community debts as well; See Section 524(a)(3) of the Bankruptcy Code.  This is getting very technical and we have other articles about this issue……  Just know that you can file for bankruptcy protection yourself to keep a bankruptcy filing off of your spouse’s credit report.  But also know that the long answer above still applies when seeking credit jointly; both credit reports are looked  reviewed.

The Bottom Line Is Take Steps To Rebuild Your Credit

One of the misconceptions us bankruptcy attorneys hear all the time is how bankruptcy will hurt or lower a credit score.  While having a bankruptcy on a credit report is certainly not positive there are all kinds of entries on a credit report that are not positive.  Also for the vast majority of people I meet with the damage to their credit score already took place given all of the missed payments piling up to that point long before seeking bankruptcy protection.  When I am sitting down speaking with someone their credit score is already pounded down by what took place already.  Most people would be better off credit score wise if they sought bankruptcy protection when they knew payments would be missed or when payments are missed.  At the same time I cannot fault anyone for trying to figure it out in the real world.  The reality is the filing of bankruptcy actually will improve most people’s credit score by stopping any additional negative history being reported and their debt to income ratio instantly changing to their benefit.  There will be no more debt listed on the credit report.  After that it is up to each individual to take the necessary steps to increase their credit score. 

Do Not Pay Any Companies For Credit Improvement Services

I cannot stand driving around and seeing signs stapled to telephone poles advertising how some company can fix your credit for a fee.  I also hear radio commercials about removing items from credit reports for a fee.  The Fair Credit Reporting Act governs the reporting of credit history and negative history can be on our credit reports for seven years.  If information reported to the credit bureaus is not accurate it should be removed and you do not have to pay anyone to do this.   

The Federal Trade Commission Website Is A Great Resource

The Federal Trade Commission provides a sample letter to dispute inaccurate credit entries and a step by step guide on how to dispute inaccurate credit report entries.  It is simple and easy to do.  We are all also entitled to a free credit report each year from annualcreditreport.com or call 1-877-322-8228.  You can get a report from each of the three major credit bureaus or just any single bureau.  The FTC website also has warnings regarding credit scams and other problems you can learn a lot from.  The Consumer Financial Protection Bureau also has this information and additional warnings about credit scams.  The CFPB was created after the mortgage meltdown to specifically help protect consumers from predator lending and other financial problems.

Not Having Accurate Credit History Is Costly

If your credit score is not a high as it should be because of negative history that is not accurate the amount you pay in interest on vehicle loans or home loans will be thousands and thousands of dollars more.  Over the life of a home mortgage of $500,000 at 3.5% interest will result in $308,280 in paid interest.  At an APR of 4.5% the interest totals $412,034; a difference of $103,758.  Realistically here in the Bay Area there are no homes for $500,000 anymore.  So let us have more fun with numbers.  A $900,000 mortgage [this is assuming you put down 20% at the time of purchase and you are purchasing an actual house at around $1.1 million or more] at an APR of 3.5% will have interest totaling $554,905.  At an APR of 4.5% the interest totals $741,660; a difference of $186,755.