In Wisconsin, when one spouse files for bankruptcy it usually impacts the other. While no one entering into this procedure should take it lightly, this shared responsibility adds another layer of concern for couples.
Having a clear understanding of how bankruptcy affects both you and your partner helps you make an informed decision before filing.
Community property and debt
Under the state’s community property arrangements, all debts incurred during a marriage are mutual. Whether it is credit card debts, mortgages or medical bills, even if only one of you accumulated the debt, you are both typically responsible. This joint liability underscores the importance of communicating openly with your partner about financial matters.
Types of bankruptcy
When you are contemplating spousal bankruptcy, you can choose between Chapter 7 and Chapter 13. The former involves liquidating assets to discharge debts for a fresh start, while the latter allows for a repayment plan over three to five years, enabling you to retain certain assets. Each option has its merits, and the decision should align with your unique financial circumstances.
Exemptions and protections
State laws allow for the shielding of certain assets during bankruptcy. These exemptions aim to safeguard items essential to your family, such as your home, vehicles and personal belongings.
Credit impact and rebuilding
Bankruptcy inevitably impacts credit scores, and you both may experience a decline. Timely payments on remaining debts, responsible use of credit and strategic financial planning can contribute to the gradual improvement of your credit over time.
Financial counseling and education
With the state’s personal bankruptcy rate ranking above the U.S. average, Wisconsin has established mandatory credit counseling to help you understand the process and potentially avoid it. This counseling provides valuable insights into budgeting, credit management and alternative solutions to bankruptcy. As a couple, you can use this opportunity to gain a better understanding of each of your financial habits, so you develop strategies for a more stable future.
While filing for bankruptcy may be the right solution in your particular financial situation, it is important for you and your spouse to explore the option together.