Quite often when I am meeting with people discussing their debt problems they say, “I don’t want my spouse involved in this” Or “how do I make sure my spouse won’t be affected by my bankruptcy”.
Many people believe that since they are married their spouse in some way can be made responsible to pay their debt. This is simply not true. If your spouse did not agree with your lender to be responsible for the debt and sign as a co-signer or guarantor then they cannot be made to pay your debt. If you hold debt in your name alone, filing bankruptcy without your spouse is possible.
Some information about your spouse will need to be shared with your trustee. This includes basic information such as their name and date of birth. You will also need to report to the trustee your total household income which means your spouse’s income must be disclosed to your trustee.
Joint & Co-signed Debts
In situations in which some debt is shared between spouses such as a co-signed loan or a joint line of credit, one spouse filing a bankruptcy will not eliminate the debt for the other spouse. Generally, joint debt is owed “jointly and severally” meaning both people involved in the debt owe 100% of the debt, it is not split 50/50. So if you and your spouse have a joint line of credit with $10,000 owing, and one person files a bankruptcy, their spouse still owes the $10,000 because they did not file for bankruptcy.
There is no way to protect a non-filing spouse from debt held jointly. Generally, this means that if there is joint debt, both people will need to do something about the debt together.
What is A Joint Bankruptcy?
Under the regulations governing Bankruptcy in Canada there are provisions for joint filing. Two people whose debt is substantially the same may proceed under a single filing together. The trustee will administer a single estate for the 2 people. Often this can result in cost savings.
In a joint filing, all of the debt need not be shared, some of the debt may be in one person’s name some in the other and some joint. For many people this ability to proceed together simplifies the process and ensures that all of the debt in the household is included and cleaned up.
Bankruptcy is not the only procedure that can be filed jointly. A couple can also make a joint consumer proposal if that makes sense for them.
Should Both Spouse’s File For Bankruptcy?
In some cases I have met with people who have joint debt, but don’t want to “wreck both credit ratings”. They wish to proceed only with one filing while the other person tries to carry on servicing the debt. There are not many situations in which this makes sense. I always say:
“If you are sweeping the floor, you sweep all of it. If you leave half of it dirty the dirt just tracks over to the clean side and you end up with a dirty floor again.”
If what you are looking for is a fresh start, usually you need a fresh start for the whole household, particularly if there is a lot of shared debt. The value of a “good credit rating” is very limited when you are already carrying too much debt.
When you are dealing with debt, even if you think only one of person in the couple needs to file, often it’s best for both spouses to attend a free consultation with the trustee. Even if one spouse is not filing often that spouse has a lot of questions about how they will be affected or if they will be affected. The trustee is best equipped to answer these questions.
If you are dealing with too much debt, and you think maybe both you and your spouse need to consider doing something about it you owe it to yourself to find out all your options and get your questions answered. Contact us today. we can help.