joint debt

Credit Card Debt and Married Couples

Marital credit card debt is a frequent cause of strife in marriages and a major cause of bankruptcy filings. Marital credit card debt may include debts solely incurred during the time of the marriage. It may also include some debts from before the marriage. Either way, it can burden married couples to the point of destroying the relationship.

Fortunately, most marital credit card debts can be discharged in bankruptcy, including  both joint and individual credit cards. Therefore, a joint card opened before (or after) the marriage is dischargeable in bankruptcy. At the same time, an individual card opened by one of the spouses, opened years before the marriage, is also dischargeable in bankruptcy. Any and all such combinations will be dischargeable, IF the couple files jointly.

This raises a scenario that sometimes occurs... what if one spouse does not want to file bankruptcy? What will happen to the marital credit card debts? In these cases, it will be important to know who is legally obligated on the debt. If only one spouse files, debts solely in his or her name will be discharged in the bankruptcy. Simple enough. This is often sufficient in cases where one spouse entered the marriage with significant credit card debt of their own. But, what about the joint debts?

Joint debtors are "joint and severally" liable. This means their creditors can go after one or both debtors for part (or all) of the debt. This may seem unfair in situations where one joint debtor has numerous attachable assets, while the other has nothing. In any case, this is the law. The creditor can go after whoever it wants, which will almost always be the person with something to take.

So, if one spouse files a bankruptcy on a joint credit card, his or her liability on the debt is wiped out. However, due to joint and several liability, the creditor can go after the non-filing spouse for the full amount. Due to this reality, it is almost always advisable for married couples with significant joint debt to file jointly. It reduces cost (the filing fee is the same for joint bankruptcy filers) and saves time. Not filing a joint bankruptcy will do no good for the household if the creditor can still collect on and possibly sue the non-filing spouse.

In many situations, the debt is in various forms, both joint and individual between the spouses. Contact us for a free bankruptcy consultation to determine if filing bankruptcy jointly, or individually, is the best option for your family. There may be situations where the individual debt of one spouse greatly exceeds any joint debts. I will be happy to walk you through the situation and give you the best options available. 

Joint Debts In Bankruptcy, Part 1

A common concern for new clients is understanding how their joint debts will be treated in Chapter 7 bankruptcy and Chapter 13 bankruptcy. This will often be a determining factor in whether or not they will even file, so it is worth taking a little time to discuss over my next two posts.

Most joint debts are "jointly and severably liable". This means if you and another person both sign on a loan that defaults, the creditor is allowed to go after one of you, both or you, or neither of you (not often!) for the full amount. The creditor is not limited to only going after half of the debt from both debtors. The creditor can collect 90% from one, 10% from the other, or any other combination.

This can be very important in situations where the joint debtors have large differences in income and assets, or are not on good terms. When there is a large difference in income and assets, the creditor is permitted to go after the assets of the wealthy signer on the loan, even if they hardly benefited from the credit. Unfair as this seems, this is entirely legal. I have had many clients co-sign on loans for their children or spouses get sued on those debts despite never enjoying any of its benefits. If you think about it, most cases with joint debtors will be unbalanced for this reason. The whole reason for applying for joint debt is that one individual has much better credit than the other.

Joint debts are also a big issue when the debtors are not getting along. This is frequently the case in divorces, where joint debts must be negotiated as part of the marital property settlement. In some cases, a joint debt you have agreed to assume through a marital property settlement will NOT be discharged in bankruptcy. I'll elaborate on this situation in my next post, but you will want to speak to an experienced Pittsburgh bankruptcy attorney to account for this situation. Regardless, when joint debts go bad, the debtors are often not willing to cooperate on dealing with the consequences.

Joint debts come in many forms. Credit cards are the most common. Cars and mortgages are also common situations. An individual wanting and needing a car will often not have the credit to finance one. This is when a parent or spouse will co-sign on the loan. "Co-signing" makes this parent or spouse jointly and severably liable. So, if further down the road, the car is repossessed, the creditor can go entirely after the co-debtor who never even used the car, but was only trying to be helpful, for the deficiency. This is actually a quite common issue.

These joint debts can be eliminated through bankruptcy. Unfortunately, there are not many legal alternatives to otherwise avoiding a joint debt, unless you can prove your co-debtor committed fraud.

The important thing to understand is that if you are a joint debtor on the loan, you are as much on the hook as your co-debtor, even if you only co-signed to be helpful. In my next post, I'll talk about how joint debts are treated in bankruptcy, which is sometimes the only way to deal with them when they have gone bad.

Contact us with any questions about your joint debt!