Bankruptcy and Your Spouse: The Fortress Strategy for Kentucky Families

By Nick C. Thompson, Louisville Bankruptcy Attorney

When you are staring down the barrel of foreclosure, wage garnishment, or insurmountable credit card debt, the sleepless nights usually aren’t about the money. They are about your family.  Your obligation to take care of yourself and your family is more important than a creditor. Joint debt, co owning a spouse’s assets, their own credit are common factors for married couples to consider and part of basic steps to protect joint assets and joint debt from being a problem

The most common question I hear in my private consultations isn’t “What happens to my credit score?” It is: “Will I drag my spouse down with me?”

There is a pervasive myth in Louisville that filing for bankruptcy is a financial contagion—that if you file, your spouse’s credit will be ruined, their job will be jeopardized, and your joint assets will be seized. This is not just wrong; it is dangerous. Believing this myth often leads families to wait too long, draining their 401(k)s and equity to pay debts that could have been discharged, effectively robbing their own future.

At my firm, we don’t view bankruptcy as a “last resort” of failure. We view it as a strategic defense mechanism designed to protect your household’s net worth, your home, and your spouse’s peace of mind.

Here is the exhaustive truth about how bankruptcy affects your spouse, jobs, credit, and co-signers in the Western District of Kentucky.

1. Will My Spouse’s Credit Score Be Ruined?

The Short Answer: No.

The Nuanced Answer: Only if you don’t take specific steps to protect them from a co-signed debt.

In the United States, credit reporting is individual. There is no such thing as a “joint credit score.” You have a file with Equifax, Experian, and TransUnion; your spouse has a separate file. When you file for Chapter 7 or Chapter 13 bankruptcy, the public record covers your Social Security Number, not your spouse’s. Unless you cosigned the bankruptcy does not effect their credit only yours.  Even if they cosigned if you repay the debt in full the codebtor stay will protect them if the debt is repaid 100%.

The “Authorized User” Trap

Here is where people get hurt. If you have a credit card in your name, and your spouse is an “Authorized User” (they have a card but didn’t sign the loan application), the credit card company reports the account history to both of your credit bureaus.

When you file bankruptcy on that card, the bank may flag the entire account as “included in bankruptcy.” This notation can appear on your spouse’s credit report, dragging their score down even though they didn’t file.

The Nick Thompson Strategy:

Before we file your case, we review every trade line. We instruct you to remove your spouse as an authorized user from your accounts before the bankruptcy petition is filed. This severs the link. If the bureaus still report the bankruptcy on their file erroneously, we have the grounds to dispute it immediately under the Fair Credit Reporting Act (FCRA).

2. The “Co-Signer” Danger Zone: Chapter 7 vs. Chapter 13

If your spouse co-signed a loan (jointly signed the promissory note), they are contractually liable for the debt. This is common with car loans and mortgages in Kentucky. How we handle this depends entirely on which chapter we choose.

Chapter 7: The Exposure

In a Chapter 7 liquidation, your personal liability for the debt is wiped out (discharged). However, the creditor’s right to collect from the co-signer remains 100% intact.

• Scenario: You file Chapter 7 to clear $50,000 in credit cards. You also have a joint credit card with your wife with a $5,000 balance.

• Result: You are free. But the bank will immediately call your wife, sue her, and potentially garnish her wages for that $5,000. Chapter 7 does not protect co-signers.

Chapter 13: The “Co-Debtor Stay” Shield

This is why Chapter 13 is often the superior tool for families with assets and joint debts. Under 11 U.S.C. § 1301, the moment we file a Chapter 13 case, a “Co-Debtor Stay” goes into effect.

This is a federal injunction that prohibits creditors from calling, writing, or suing your co-signer (spouse) for the collection of a consumer debt.

The Catch: To keep this protection in place permanently, our Chapter 13 Plan usually needs to propose paying that specific co-signed debt in full (100%) plus interest.

• Strategic Benefit: We can use the Chapter 13 plan to pay off the joint car loan or joint credit card at a manageable pace, while simultaneously discharging your individual debts (like your old medical bills) for pennies on the dollar. Your spouse is protected, their credit is preserved, and the debt gets paid.

3. Employment: Will My Spouse Lose Their Job?

The Fear: “My husband works at Fort Knox/UPS/Ford. If I file, will they fire him?”

The Law: Absolutely not.

Federal law (11 U.S.C. § 525) and Kentucky employment statutes provide layers of protection.

1. Private Employers: Cannot fire an employee solely because they (or their spouse) filed for bankruptcy. While this protection is strongest for the filer, there is absolutely no legal basis for firing a spouse of a filer.

2. Security Clearances: This is a specialty of my practice. Financial distress (unpaid, delinquent debt) is a security risk because it makes an employee vulnerable to bribery or blackmail. Filing bankruptcy is often viewed by adjudicators as a step toward resolving that risk. It shows you are taking control. Unresolved debt kills clearances; bankruptcy saves them. The Adjudicative Guidelines for Determining Eligibility for Access to Classified Information specifically lists bankruptcy as a “good-faith effort to repay overdue creditors” as a mitigating condition.

3. Spousal Separation: Your spouse’s employer has no legal mechanism to be notified of your bankruptcy unless your spouse is a co-debtor and we fail to stop a garnishment (which we won’t fail to do).

4. Kentucky’s “Necessaries” Doctrine: A Warning on Medical Debt

Kentucky is not a community property state. Generally, your debts are yours. However, KRS 404.040 creates a unique liability regarding “necessaries.”

The statute states that a husband can be liable for “necessaries” provided to his wife (food, shelter, and primarily medical care). While the constitutionality of this old law is debatable (since it singles out husbands), creditors still use it to sue husbands for their wives’ hospital bills.

The Strategy:

• Constitutional Defense: The gender bias in KRS 404.040 (making husbands liable but not wives) makes it vulnerable to challenge. We use this ambiguity to negotiate aggressively with creditors.

• The Bankruptcy Stop: If negotiation fails, filing bankruptcy stops this liability dead in its tracks. The automatic stay (11 U.S.C. § 362) halts lawsuits against the filer. If the husband files Chapter 13, we can often shield the household income from garnishment for these debts.

5. Protecting the Marital Home

Many of my clients own a home with their spouse. We must analyze how the deed is recorded.

• Tenancy by the Entirety: In Kentucky, if you own property as “Tenants by the Entirety” with your spouse, and only one of you files bankruptcy, the equity in that property is often protected from unsecured creditors of the filing spouse. This is because under Kentucky law, a creditor of only one spouse cannot force the partition and sale of “Entirety” property.

• The Homestead Exemption: Kentucky allows an exemption (protection) for a specific amount of equity in your home. If you file jointly, we can double this exemption, protecting significantly more equity.

The Bottom Line: We rarely lose homes in Chapter 7 cases, and never in Chapter 13 cases if the payments are made. The goal is to keep the house and eliminate the second mortgage or credit card liens that are threatening it.

6. Strategic Filing: Should We File Jointly or Individually?

This is the “Million Dollar Question.” We use a strategic matrix to decide:

We analyze your “Household Income” using the Means Test (Form 122A-1). Even if you file individually, we must disclose your spouse’s income to the court to determine your household budget. However, listing their income does not make them liable for your debts or put them in bankruptcy.

Summary: The “Nick Thompson” Promise

You are not just a case number. You are a family trying to build a future.

• We use Chapter 7 to clear debt and increase your net worth immediately.

• We use Chapter 13 to save homes, cars, and protect co-signers using the 11 USC 1301 stay.

• We limit our caseload to less than 20 cases a month so that I can personally ensure every loophole is closed and every exemption is claimed.

Don’t let fear of the unknown paralyze you while interest rates destroy your family’s wealth.

Call me today at 502-625-0905. Let’s build a fortress around your finances.

Resources for Bankruptcy

Louisville Kentucky Bankruptcy Forms

Bankruptcy Manual

Other Related Information

Louisville Kentucky Bankruptcy Divorce

Bankruptcy Adversary Proceedings: Chapter 7 and 13

Self-Help Resources for Rebuilding Your Life After Bankruptcy

If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905