How Does Bankruptcy Affect the Engaged Couple?
- Credit bureaus such as Experian, Equifax and TransUnion report bankruptcy information for a minimum of 10 years. It is possible to rebuild credit three or four years after completing bankruptcy, but initially the effects are devastating. People with a recent bankruptcy are unlikely to qualify for competitive interest rates on most loans, and loans for home mortgages are often not available at all until well after the bankruptcy.
- An engaged couple with one or both spouses in bankruptcy may pay much more for credit than couples without bankruptcy. Landlords may require higher deposits on rental homes and apartments and purchasing a family car may require agreeing to high-risk loans targeting buyers with bad credit. Even employment could be an issue. Some employers review credit reports for bankruptcy during the hiring process, and that could keep one or both of the debtors from gaining employment in certain situations.
- Bankruptcy is not easy under any circumstances, but the effects are potentially less troublesome for an engaged couple if only one of the partners is in bankruptcy. That allows the pair to keep their credit completely separate. The spouse not involved in bankruptcy can apply for auto loans or other essential credit. However, care is necessary for the one partner not to create additional problems by loading up on debt.
- The type of bankruptcy is another factor. Chapter 7 bankruptcy is the fastest form of personal bankruptcy and lasts just a few months. Effects on credit will continue after the discharge of the bankruptcy, but completing the bankruptcy in only three or four months is a major advantage over Chapter 13 bankruptcy. Chapter 13 requires the completion of a three- or five-year court-ordered payment plan to satisfy creditors. During that time, the bankruptcy court closely monitors the debtor's spending, and the restrictions are so severe that some people drop out of the program. The payment plan and court monitoring could introduce conflict in the engaged couple's relationship. BCS Alliance recommends that people opt for Chapter 7 if at all possible. Chapter 7 completely eliminates unsecured debt such as credit cards, but only those with low incomes qualify. Others can choose Chapter 13.