Declaring bankruptcy or filing a consumer proposal are important decisions that cause a lot of stress to people with financial difficulties. For the majority of people, insolvency is a little known area. However, understanding the process of bankruptcy helps to make informed decisions and reduce stress.
Very often, we are asked, “how will my bankruptcy affect my spouse?” This is a common question because most people do not want their spouse to be involved or to be aware of their financial problems. Others simply want to be able to pay all the debts of the couple at the same time. Whatever the reason, it is better to understand how bankruptcy affects one’s spouse.
1. Who is responsible for the debts?
In a married couple or in a legal union, the responsibility for debts may belong to:
- to you only,
- to your spouse only, or
- to the couple.
The mere fact that you are in a relationship does not make you responsible for your spouse’s debts. You are responsible for your debts, your spouse is responsible for his debts and the couple is responsible for joint debts incurred jointly, that is to say the debts for which both have been guarantors to the institution financial.
What is important to know, if there is no common debt, is that:
- If you declare bankruptcy, your spouse does not have to declare bankruptcy too,
- your spouse is not liable for your debts, unless he or she is your endorser,
- your spouse’s credit rating will not be affected by your bankruptcy.
2. What happens to joint debts?
If you and your spouse are responsible for a debt and you decide to go bankrupt,
- your spouse may have to repay the debt,
- your spouse could also consider a bankruptcy or a proposal,
- you could go bankrupt or a proposal together.
3. What is a joint bankruptcy or joint proposal?
If you and your spouse have joint debts, you could declare a joint bankruptcy or file a joint proposal.
There are several advantages to bankruptcy or joint proposal:
- less administrative costs compared to two individual files,
- a higher cap in the case of a consumer proposal: 2 x $ 250,000
In the case of a joint file, both parties are responsible for the payments.
4. What happens in the case of divorce?
Joint debts are not affected by divorce and they are not divided 50-50 as one might think. You could ask the creditor to take responsibility for you or your spouse on the debt, but there is no reason to accept it.
Beware, if your ex-spouse goes bankrupt, the creditors of the joint debts will turn to you to make the payments.