Effects of Bankruptcy on Credit

  • Effects of Bankruptcy

Effects of Bankruptcy on Credit

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People filing for bankruptcy are often scared about the effects of it on their loved ones. Debtors often believe that their credit gets merged with their spouse’s credit or that the liability of their debts will fall on their children in case they are still remaining at the time of death. Such rumors are untrue and misleading.

Firstly, the credit scores of the spouses are independent of each other. The credit score of one partner might be extremely good while the other’s may not. Sometimes, one spouse owes all the unsecured debts while the other has the home mortgage liability in his name. At times, the home mortgage liabilities are so big that the bank requires income commitment from both the spouses to risk giving a loan. This does not mean the merging of credit. Thus, spouses, signing a mortgage note on a house, are equally liable for that debt. So, if anything goes wrong, both will be equally responsible for it. This is the reason why most of the people opt for a bankruptcy filing after the completion of their divorce.

The idea of inheriting debt liabilities is a thing of the past. Still, there are reasons for the children to feel that they have inherited a debt. For example, in case of the death of an estate owner, the accounting of the property becomes the responsibility of its personal representative and the distribution of the property to the heirs is done after the creditors are paid off. This might make the heirs feel that they have inherited the debts of the dead. However, the catch here is that the debts are being paid using the dead person’s funds and not of the living heirs. The only way to be liable for a deceased person’s debt is if the heir had co-signed for the debt with the dead person. This way the living person might feel that he or she has inherited the debt, although technically that is not the case.

Moreover, an heir can make a voluntary choice to assume a deceased parent’s debts. It can sometimes be done to prevent the repossession of the assets.

To summarize, debts cannot be inherited like the inheritance of a property. In order to know more about the effects of your debts on your heirs, contact the Recovery Law Group at www.recoverylawgroup.com or call on 888-297-6203. They provide the best bankruptcy attorneys in Los Angeles & Dallas, TX.