How is my spouse affected by my bankruptcy?
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By Jennifer Abrahams | Reading time: 5 minutes, 11 sec | 1039words | Date: 2021.09.15
I love my husband, he is kind, funny, and really, really smart. We share many interests and enjoy each other’s company. We have great conversations about a wide variety of things, but we’re not always good at talking about money. Marriage is not always easy, and often talking about money is one of the hardest parts. While we’ve been lucky, many couples deal with bankruptcy, and this question is important: how will my personal bankruptcy affect my spouse?
Your bankruptcy is yours
First off, your spouse’s bankruptcy is not yours. Their personal debts are not yours. Their assets are not yours, and their credit rating is not yours. That said, there may be joint debts or joint assets that may be affected.
Let’s start by understanding joint debts
A joint debt is anything where your spouse has co-signed or provided a guarantee. Maybe one of you got a car loan and you didn’t have established credit, so you both signed the paperwork. Maybe you co-signed the rental agreement for where you live, or both of your names are on the utilities account.
When it comes to joint debts, you are both responsible to pay the full balance. Even if you declare bankruptcy, your creditors could pursue your spouse for full payment.
Shared credit cards
Often couples will get a joint or supplementary credit card account, which can make it easier to handle household or family expenses. In some cases both people are jointly responsible for the balance, sometimes only one person is entirely responsible, and sometimes the second person is a guarantor.
If you’re considering bankruptcy, it’s important to understand what type of agreement you have with your credit card issuer. That will determine if your shared credit card is a joint debt.
Joint consolidation loans
Sometimes when couples come together, one or both is challenged with some financial difficulty. A few of these couples choose to combine their debts and create a joint consolidation loan. In this case, they are co-borrowers, and they are both responsible for the full value of the loan.
If you and your spouse have one of these consolidation loans, and you declare bankruptcy, the other may be held responsible for the full value.
If you have significant joint debts, you may both need to declare bankruptcy.
It’s not well known that in bankruptcy a wide range of assets can be protected from creditors. Each province has its own regulations about this, so it’s important to understand those rules. Your Debt Relief Specialist can help you determine this.
My spouse’s assets
Assets that belong solely to your spouse are not of interest to your bankruptcy estate or Licensed Insolvency Trustee. For example, if they have a car where the ownership and any loans attached to it have just their name on it, it has nothing to do with your bankruptcy.
If there are assets that are owned jointly, the Trustee may need to liquidate the share that is owned just by the person declaring bankruptcy. An example of this is where you own a recreational vehicle together. If you declare bankruptcy and your spouse does not, but you both own the RV outright with no security against it, it may need to be sold, and your portion of the proceeds applied to your bankruptcy. Your spouse would receive their proceeds as income.
If you have transferred assets to your spouse just prior to your bankruptcy, those assets may be subject to review and could be included in the bankruptcy.
During a bankruptcy, you will be required to report your household income and expenses, which will include your spouse’s income as long as you live together. This information is used to determine how much you pay your creditors.
Any income that your spouse earns during your bankruptcy remains their own and they will continue to receive it. Even though it is reported, they are not expected to pay any portion of their income as “surplus”.
There may even be circumstances where their income is not reported, although this may have an impact on the amount you are required to pay.
It’s important to remember that your bankruptcy is only yours. It will appear on your credit rating, not your spouse’s. Their credit rating will be unaffected.
Because it is on your credit rating, your ability to co-sign with your spouse may be limited for a while. By working to rebuild your credit, you can regain this flexibility.
Part of the bankruptcy process is mandatory attendance at 2 counselling sessions. These sessions are coordinated through your Licensed Insolvency Trustee and are an integral part of the financial fresh start that bankruptcy brings. There is lots of useful and helpful information, so it’s a good idea to bring your spouse for these sessions.
If your assets or debts are mostly joint, it may be best to file a joint bankruptcy. This approach will provide both of you with a financial fresh start, and allow you to move forward without overwhelming debt. Many of the same rules apply, so you will want to talk to a Debt Relief Specialist to review your options.
There is another solution to overwhelming debt: a Consumer Proposal: Alternative to Bankruptcy is an agreement with your creditors that combines all of your outstanding debt into one easy monthly payment. When you work with a Licensed Insolvency Trustee, a Consumer Proposal halts all creditor actions (from collection calls to legal action), stops the accrual of interest, and can substantially reduce the total that you owe.
It’s worth asking your Debt Relief Specialist which would be the best for your situation.
If you or your spouse are dealing with overwhelming debt, it’s time to reach out to a Licensed Insolvency Trustee. You will generally start by speaking with a Debt Relief Specialist, who will recommend your next steps. It’s a good idea for you both to attend the first meeting so you both hear the information that is discussed, and you may think of different questions to ask.
Every situation is unique. Speak to a Debt Relief Specialist with Bromwich+Smith to help determine the best route forward for your family.
Jennifer is COO of a family of 4 that includes two very hungry teenagers with expensive taste in electronics and hoodies. When not scouring the world for the greatest deals, she can be found playing Momtaxi, e-biking around Calgary, or figure skating, and she is the Marketing Manager at Bromwich+Smith.