How Are Friends, Family, or Partners Affected By Your Bankruptcy?

If you are considering bankruptcy, you're undoubtedly concerned about how it might affect you personally and financially. But you may also wonder about collateral effects on those around you. Will your spouse, your children, your parents, your employer, business partners, or even other family and friends be affected?

Here are some answers that will give you peace of mind and help prevent problems. 

Is Your Spouse or Partner Affected by Bankruptcy?

The biggest question many people in long-term relationships have is how their partner may be affected if they declare bankruptcy. The answer has many facets. First and foremost, bankruptcy is a personal declaration, so even a spouse is not automatically involved. One spouse can declare bankruptcy whether or not the other does. 

However, the big factor is how intertwined your finances are. If your partner is a joint holder of any debt — such as a mortgage or credit cards — the lender will likely turn to them for full payment. And if you opt for a debt repayment plan, your spouse's income and expenses will generally be considered when determining what you can pay. So your partner may or may not need to seek their own bankruptcy. 

Is Your Parent or Child Affected by Bankruptcy?

Family members, like spouses, are not directly involved in any other member's bankruptcy petition. But they may be linked by financial obligations. If your parent co-signed loans from which you're seeking discharge, for instance, they will likely still have their own obligation to pay these. And if they loaned you money directly, they would be treated just like any other creditor and may not see full repayment. 

Are Business Partners Affected by Bankruptcy?

Business partnerships and personal bankruptcy can be tricky. If your business is a C corporation, a shareholder's bankruptcy is unlikely to affect the company and other shareholders. It may even make things easier if you have been suffering from harassment from collections efforts. Any loans you have from the corporation could be included in bankruptcy, though, and it may be impossible to give them priority. 

If your business is a partnership or S corporation, though, a personal bankruptcy of any partner could affect the other partners if they are personally liable for related debts. Once one partner's obligation is waived through bankruptcy, creditors may come after the other guarantors. One good solution may be to refinance or modify those specific debts. 

Is Your Employer Affected by Bankruptcy?

The good news is that your current employment may become easier after bankruptcy protection. If creditors have been violating rules about attempting collections on company property or have reached out to your colleagues or clients, bankruptcy will stop that harassment. And if anxiety and financial juggling has sapped your sleep or caused depression, you may find it easier to focus on being a great employee. 

Are Friends Affected by Bankruptcy? 

Bankruptcy is often a taboo subject, but it can make your personal relationships better. Debtors who have been hounded by bill collectors or face repossession, for instance, may have had a hard time personally. If your friendships have suffered during your debt struggle, bankruptcy is a chance to start over without that weight on your shoulders. 

As with family members, though, any friends who loaned you money would be treated like any other creditor with regards to repayment. If the idea of a friend not being paid back could affect your friendship, discuss the idea of making voluntary payments once bankruptcy is completed. 

Do you have questions related to your specific personal relationships or financial entanglements? Learn how you and your circle could be affected by speaking with the bankruptcy pros at Charles J Schneider PC. We can help you know what to expect and how to prepare any friends or relatives who may be accidentally involved as you seek debt relief.