How does bankruptcy affect my spouse in Canada?
Many people worry that a spouse’s bankruptcy will affect their finances or damage their credit score.
But the truth is bankruptcy does not affect your spouse or common-law partner unless you have a co-signed loan together, shared debts, or you have guaranteed payment of your spouse or partner’s debt.
If you think any of these scenarios apply to you, keep reading to learn more.
Will I go bankrupt if my spouse files bankruptcy?
The good news is if you declare bankruptcy, it does not result in your spouse or common-law partner becoming bankrupt.
Will I be responsible for my spouse’s unpaid debts?
Your bankruptcy filing does not mean that your spouse or common-law partner becomes liable for your debts.
The only exceptions are shared joint debts or if you have guaranteed payment of your spouse or partner’s debt.
For example, you may have a shared debt such as a joint credit card or co-signed loan. If this applies to you, both parties are responsible for the debt. If one person files for bankruptcy in this scenario, the other is liable for the total amount of the debt.
Some examples of shared debt are:
- Credit cards for one account with your names on different cards.
- A joint application for a consolidation loan.
- Any debt that you applied together for.
Here’s a tip: check that your partner or spouse has no responsibility for any debts before filing for bankruptcy. You can do this by checking your statements, calling creditors or checking your online accounts.
If you do not have shared, co-signed or guaranteed debts, then your debts are yours alone. Your creditors cannot demand that your spouse pays for your debts.
If you have shared debts, you may want to consider filing a joint bankruptcy, but this is optional.
Joint bankruptcy is when two people file for bankruptcy together as one file because they share the same debts. To qualify, both parties should share equal responsibility for the majority of the debts in question.
You could also consider a joint consumer proposal, which is less drastic and typically cheaper than bankruptcy.
Will filing for bankruptcy affect my spouse?
If you want to apply for joint credit further down the road, your bankruptcy can affect your chances of you both being accepted.
For example, obtaining a joint credit card or a co-signed loan might not be possible because a credit check will notify the creditor or lender that you’ve filed bankruptcy recently.
However, your bankruptcy won’t affect your spouse or partner if they wish to apply individually.
Will my credit be affected if my spouse files for bankruptcy?
No, if the debts belong to your spouse, then their bankruptcy will not affect your credit score whatsoever.
Will my assets be seized if my spouse files for bankruptcy?
Assets that you own will not be affected by your spouse’s bankruptcy. In fact, filing for bankruptcy doesn’t necessarily mean that your spouse will lose their assets either.
Going bankrupt doesn’t mean you automatically lose everything; you can keep some possessions when filing for bankruptcy.
This is because some assets are exempt, meaning they are protected when you file for bankruptcy.
These exemptions may protect things like household furnishings, clothing, food, heating, and healthcare, depending on where you live. Even your house and car can be protected.
See also: Does bankruptcy affect my assets?
Bankruptcy can be confusing, and you might not know where to turn, so you might want to discuss your options with a Licensed Insolvency Trustee for free, impartial advice.
Will my income be affected if my spouse files for bankruptcy?
Your income isn’t affected if your spouse or partner goes bankrupt, and you will not be required to pay anything towards your spouse’s bankruptcy.
Your spouse or common-law partner will perform some bankruptcy duties throughout the term of the bankruptcy.
As part of these duties, your trustee will request proof of your monthly household income and allowable expenses (childcare, medical receipts, etc.).
This information allows your trustee to calculate if you have surplus income, which determines how much you pay each month towards your bankruptcy.
If you have surplus income, it will extend your bankruptcy. As a result, it takes longer to complete the bankruptcy.
Will a joint credit card be affected if my spouse files for bankruptcy?
If your spouse files for bankruptcy and you have a joint or supplementary credit card with your name on the card or account, you are responsible for the debt for that account.
Here’s a tip: check if you are on the credit card account by contacting the credit card issuer.
What happens to debt in a divorce?
If you get divorced, any joint debts you share remain your responsibility, and you are both liable for the total amount of the debt.
If you decide to declare bankruptcy, your spouse is liable in full for any joint debts.
How bankruptcy works with a joint mortgage for a property
If you jointly own your home and one person decides to file for bankruptcy, you will owe creditors a portion of the equity in the house.
The person who is not filing keeps their share of the home equity, and this portion does not go to your creditors.
This process may also apply to other assets, such as a vehicle.
Filing for bankruptcy in Canada does not affect your spouse or common-law partner unless you have shared debts, co-signed debt, or guaranteed payment of your spouse or partner’s debt.
Find out if you have joint debts by contacting the creditors directly. If you are still unsure, talk to a Licensed Insolvency Trustee who will explain how it works in your situation.
If you are interested in bankruptcy and want to know how this will affect your spouse or common-law partner, connect you with a Licensed Insolvency Trustee today.
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