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Joint Debts

Will Filing for Bankruptcy or a Consumer Proposal Affect my Spouse?

Dealing with debt can take a considerable toll on your relationship with your partner or spouse. This is especially true if one partner is responsible for the majority of the debt. If you are considering Bankruptcy or a Consumer Proposal as a debt relief option, you might question how it will affect your spouse or partner.

Several factors, including the type of debt you carry, will impact how your spouse is affected. If you entered into your marriage with a lot of individual debt, your partner might not feel much of an impact if you file for Bankruptcy or a Consumer Proposal. However, if you and your partner share a substantial amount of joint debt and you file for Bankruptcy, this could have a considerable effect on their financial situation as they will become solely responsible for paying off this debt.

What is Joint Debt?

Joint debt is when you borrow money with someone else, often your husband, wife, or partner. When you take on joint debt, whether a mortgage, joint credit card, or a personal loan, both of you become responsible for the entire amount. You also split the legal responsibility of any debt that you or your joint owner incur.

While you might enter into a joint credit agreement thinking you are only responsible for your half, this is not the case. Even if you pay your share of the monthly mortgage payment or credit card bill, if your partner fails to pay their share, you are equally responsible for the debt.

Am I Responsible For my Spouse’s Debt if we Divorce?

Whether or not you are responsible for your spouse’s debt if you divorce depends on the type of debt you have. If your spouse entered the marriage with individual debt, meaning they were the only one who signed for the loan or credit card, you are not responsible for their pre-marital debt.

If you share joint debt for your mortgage or you co-signed a credit card, you are both responsible for this debt. If you co-sign a loan with your spouse and they fail to make the payments, you are accountable for the debt. From a creditors perspective, you are responsible for any debt that has your name on it.

However, when you are separating or divorcing your partner, the family courts don’t just look at whose name is on the debt account. In some circumstances, even if you didn’t co-sign or guarantee your partner’s debt, the court can still rule that some of your marital debt (debt acquired while you’re married) should be shared.

This can include any credit card, student loans, or lines of credit acquired while you were married. This rule doesn’t just apply to married couples. If you live with your partner for at least two years in a marriage-like situation, you may also find yourself responsible for debts acquired while you were living together. This is according to the Family Law Act,

Signing a prenuptial agreement can help you avoid any messy debt and property division if you end up getting divorced.

Can I File For Bankruptcy Without My Spouse?

Yes, you can file for Bankruptcy in Canada without your spouse. While it’s a common misconception that your spouse will have to file with you, this isn’t true. You can file for Bankruptcy alone and, in some cases, your Bankruptcy may hardly impact your spouse and their finances. If you are the only one listed on the debt accounts, your creditors can not come after your spouse just because you are married.

How will filing for Bankruptcy affect my spouse?

When you file for Bankruptcy, you are the only one that will benefit from the debt relief it provides. If you and your spouse share a joint credit card or bank accounts, you are released from your debt obligation while they are still on the hook to pay back the entire amount. When you file for Bankruptcy, your spouse becomes 100% liable for the joint debt, not 50%.

If most of your unpaid debts are joint debt and you file for Bankruptcy, you can leave your partner in a tough spot. In this case, it might make more sense to do a joint Bankruptcy filing.

What is Joint Bankruptcy?

Joint Bankruptcy is when you and your spouse file for Bankruptcy together. The benefit of a joint Bankruptcy is you can save on filing fees. Rather than each filing individually and paying separate fees, you can file together and only pay once. If you file for joint Bankruptcy both of your credit ratings will be impacted. This can make it difficult for either of you to borrow money until the Bankruptcy is cleared from your credit report. It can take up to seven years after the date you are discharged before it is cleared.

Can I File For a Consumer Proposal Without My Spouse?

To avoid Bankruptcy, you can consider a Consumer Proposal as an alternative debt relief option. In a Consumer Proposal, you work with your LIT to develop an offer to pay your creditors a certain percentage of the debt owing based on what you can afford.

It is possible to file a Consumer Proposal without your spouse. If you have a lot of individual debt and share a small amount of joint debt, it might make sense to file for a Consumer Proposal on your own. In this scenario, your spouse is responsible for paying back the full balance of your joint debt minus what you pay to the creditor in your Consumer Proposal.

If you and your spouse both have a considerable amount of personal and joint debt, filing for a joint Proposal might make sense. Like a joint Bankruptcy, you can save on filing fees when you file for a Proposal together. If you file jointly, both of your credit scores can be affected for up to six years after the date you filed.

Contact a Licensed Insolvency Trustee Today

The prospect of filing for Bankruptcy or a Consumer Proposal can feel overwhelming. When you are concerned about how your financial actions and decisions will affect your spouse, this adds another layer of stress. If you are considering debt relief options, contact a Licensed Insolvency Trustee as soon as possible.

An LIT can work with you to determine which debt relief option is right for you and can answer any questions about how it will affect your spouse and family. For more information or to schedule a free no-obligation consultation, reach out to Adamson and Associates at 519-310-JOHN or contact us online.

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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