Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Apr 12, 2012

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As with so many other financing questions, this one too comes with the frustrating answer of, “It depends.”

There are two factors to consider when determining whether or not bankruptcy of one spouse will have an effect on the other: whether or not the state the married couple lives in is a community-property state and whether or not both spouses agreed to responsibility for whatever types of personal loans the bankrupt spouse can’t repay.

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Community-property states are those that view all debts as joint in marriages. These are the states that two people completely agree to take on responsibility for their spouse’s debts upon getting married. There are only nine of them: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Since these states view marriages as joint, when one spouse files bankruptcy, the other spouse is able to fully enjoy the “automatic stay” that the now bankrupt spouse if awarded with.

An automatic stay is the term used to block debtors from creditors. When somebody files for bankruptcy, creditors are required to stop contact with their bankrupt borrowers due to the automatic stay that’s placed on creditors.

Those whose spouses file for bankruptcy in non-community property states will not be awarded with automatic stay protection. While the bankrupt spouse will not be permitted to be contacted by creditors, the non-bankrupt spouse still will be.

Joint Responsibility for Personal Loans

If both spouses are jointly liable for a personal loan debt, then the non-bankrupt spouse will still be responsible for paying the debt back.

This is particularly true if the spouse doesn’t file Chapter 13 bankruptcy. This is because other Chapters of bankruptcy will likely alleviate themselves of liability, but often leaves their marriage partner still liable.

If Chapter 13 is filed, then the non-bankrupt spouse may be off the hook, depending on how the Chapter 13 repayment plan is structured.

Before filing bankruptcy, personal loan borrowers need to consult an attorney in order to fully understand their situation and where a bankruptcy filing of one spouse will leave the other.