Q. I just got married, and my wife just told me she had a bankruptcy three years ago when we first met. She never told me this before. What will this mean for us buying a house or a car and our financial future? (I’m not happy about this…)
— New husband
A. It’s so important for spouses to be honest with each other about money.
You’re working as a team, and your individual financial pasts will impact what you’re able to do in the future.
Your first inquiry should be under which chapter your wife filed for bankruptcy, said Ilissa Churgin Hook, a bankruptcy attorney and member of Hook & Fatovich in Wayne, New Jersey.
Hook said if she filed a Chapter 7 case and received a discharge, her case would most likely be closed by now.
However, if your wife filed a Chapter 13 case and confirmed a five-year payment (personal reorganization) plan, she would still be a debtor in a pending bankruptcy case, Hook said.
“If your wife is still in an active Chapter 13, she will need to obtain bankruptcy court approval in connection with any proposed financing, including a mortgage or a car loan,” Hook said.
Assuming that your wife filed a Chapter 7 that is closed, her credit score should actually be increasing gradually as she makes timely monthly payments to her creditors, Hook said.
“The idea behind a bankruptcy discharge is to give a debtor a `fresh start’ financially,” she said. “If your wife has a car loan or credit cards and is current with her payments, her credit score is already being rehabilitated.”
Hook said a bankruptcy filing stays on one’s credit report for 7 to 10 years, but in view of the large number of foreclosures and resulting bankruptcy filings in recent years, a Chapter 7 bankruptcy filing does not, generally speaking, carry the same stigma as it once did.
“A prior Chapter 7 filing does not automatically mean that your wife will not qualify for a mortgage or a new car loan, however, it may mean that she will pay a higher interest rate than someone with a higher, unblemished credit score,” she said.
Assuming that you and your wife desire to buy a home together, and both plan to be on the deed and mortgage, both of your credit scores and histories will be considered by potential lenders when you apply for a mortgage, Hook said. Other events that can negatively affect one’s credit score include, but are not limited to: late payments, a prior foreclosure or auto repossession.
“I recommend that you both run your credit reports to see what is on there, as well as discover your current credit score prior to applying for a mortgage,” Hook said. “If it turns out that your credit score is significantly higher than your wife’s, you may desire to speak to a real estate attorney regarding the pros and cons of different options, such as putting the deed in both names, but with only your name on the mortgage.”