- Spouses share liability for most debts in community property states.
- Spouses have no liability for each other's debts in common law states, generally speaking.
- Close any joint bank accounts and use separate accounts only.
Can a credit card issuer garnish my spouse's wages if I default on my credit card payments?
Can a credit card lender garnish my spouse's wages if I default on any of my credit cards? I live in Michigan.
Generally speaking, if both spouses sign a debt agreement both are jointly liable to the creditor. However, if only one spouse signed the agreement, then depending on which state the agreement was signed or where the spouses now live, the non-signing spouse may have liability.
You mentioned you reside in Michigan. Michigan is a common law state regarding family law. In other words, Michigan is not a community property state.
Spousal liability in non-community property states
Generally speaking, if the spouses never resided in a community property state, and only one spouse signed the loan contract (such as a credit card agreement), then the signatory-spouse is liable for the debt. Conversely, the non-signatory spouse does not share in his or her spouse's liabilities in non-community property states.
If you and your spouse are Michigan residents and were residents when you incurred the debt, then the rule I just outlined applies to you. However, if you resided in a community property state then more complex rules apply.
Spousal liability in community property states
The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
If the spouses now live in a community property state, or lived in one at the time the consumer debt account (such as a credit card account) was opened, the non-signing spouse may have incurred liability without signing a credit contract as co-debtor. If the debt incurred during your marriage was used for the benefit of both members of the marriage, liability may accrue to the non-signing spouse in community property states.
Regarding a non-signing spouse's liability IF the parties are living in a community property state AND the debt was incurred during their marriage for the benefit of both spouses, AND a spouse is sued and a judgment is rendered for a specific amount owed, the judgment can be collected by wage garnishment against any defendant included in the judgment order singularly or simultaneously. The garnishment amount is normally 25% of net income (that is, after withholding) but this varies from state to state. The creditor does not have any duty to "even out" the judgment liability between the spouses. A creditor has the legal right to collect 100% from either spouse, whichever is more convenient for them.
As a practical matter, even in community property states, many creditors do not go to the trouble of suing both spouses, as doing so tends to complicate the legal process involved in obtaining a judgment. However, this does not mean that a particularly aggressive creditor will not pursue all of its available rights to collect a debt.
One important disclaimer: Community property laws are unique to each state -- no two states share the same laws. The discussion above regarding spousal liability is meant to provide general information about community property as a theory. Your state's laws may vary from the general theory. Therefore, it is important to consult with an attorney in your state who can review the details of your situation and give you accurate and precise advice about your rights and liabilities under your state's laws.
People with significant debt often consider bankruptcy. Let us assume one spouse filed for protection under chapter 7 or 13 of the federal bankruptcy code. That filing may not have any effect, positive or negative, on the non-filing spouse. In a non-community property state, the filing of one spouse does not give the other spouse protection of the "automatic stay" (blocking creditors from collection) or the bankruptcy discharge.
Similarly, one spouse filing bankruptcy will not have an effect on the other spouse's credit report, if there are no joint debts. If there are joint debts, you can expect the bankruptcy to be noted in some way on the credit record of the non-filing spouse.
If both spouses are jointly liable to a creditor, the bankruptcy of one does not relieve the other of paying the debt. Upon a bankruptcy, the creditor may look to the other spouse for payment, unless the bankruptcy case is under Chapter 13. If the debt is a consumer debt to be paid 100 percent through the Chapter 13 plan, the co-debtor is protected by the co-debtor stay.
There may be good news for spouses who file for bankruptcy in a community property state. When one spouse files bankruptcy in a community property state, the marital community enjoys the protection of the filing spouse's bankruptcy discharge.
Consult with an attorney to discuss the possible ramifications for both spouses. Bankruptcy laws and courts are federal, but community property and family law vary from state to state. It is important to discuss your situation with an attorney familiar with your state's marital property laws.
Bankruptcy and judgments
Some judgments cannot be discharged in bankruptcy, including child support, repayment orders dealing with cases of fraud, student loans and some taxes. However, a credit card judgment can be discharged in bankruptcy.
Review the Bills.com bankruptcy help page to learn more about this procedure, what it can do for you, and more on which debts can't be discharged in a bankruptcy.
If you live in a community property state you have a theoretical liability for your spouse's debt. If the judgment-creditor is particularly aggressive this will have a negative impact on you. If you live in a common-law state (Michigan, for example) the non-debtor spouse should have no liability.
Beware joint accounts. A judgment-creditor may have the right under your state's laws to seize the funds in any joint accounts owned by the judgment-debtor. For this reason, I do not recommend joint accounts. If you have a joint account with a judgment-creditor, then working in concert with the judgment-creditor, close the account. Open separate accounts with separate tax ID/Social Security numbers. If you need to transfer funds between the accounts, your bank or credit union will almost certainly allow you to do so electronically.
I hope this information helps you Find. Learn & Save.
Dealing with debt
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2023 was $17.503 trillion. Student loan debt was $1.601 trillion and credit card debt was $1.129 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
Collection and delinquency rates vary by state. For example, in Hawaii, 11% have student loan debt. Of those holding student loan debt, 7% are in default. Auto/retail loan delinquency rate is 3%.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.