This is one of the most common questions asked when consumers file for bankruptcy. And it’s a valid one.
If you’re married or in a common-law relationship when you declare bankruptcy, you’ll want to know if your spouse will be negatively affected by your filing. Fortunately, the answer is a positive one, as long as your spouse’s name is not on the debts.
Does Bankruptcy Affect My Spouse In Canada?
No, declaring bankruptcy in Canada will not affect your spouse. There is a common misconception that spouses are equally responsible for each other’s debt. But this is not true, with one important exception.
Only you are responsible for your debts, not your spouse. If you file for bankruptcy, your debts will eventually be discharged, except your joint debts.
What About Joint Debts?
As mentioned, there is one exception to the above rule: if your spouse co-signed your debt, they’ll also be on the hook for your debt. In this case, you will both be responsible for the debt.
For instance, if you applied for a loan and added your spouse’s name to the loan agreement as a co-signer or guarantor, the debt is also legally theirs.
The same rule applies if you and your spouse took out a loan as joint borrowers. In this case, you will both be responsible for the debt. As such, even if you declare bankruptcy, your creditors can still go after your spouse for joint debts.
Further, your spouse may be affected in the future if you decide to take out a loan jointly. Even if your spouse’s credit score is healthy, your history of bankruptcy and poor credit could make it more difficult for you both to obtain joint financing.
Are Supplementary Credit Cards Considered Joint Debts?
A supplementary credit card is issued to another person who is not the primary account holder. In this scenario, one person takes out a credit card in their name and allows their spouse to have a card with the same account number.
If your partner’s name is on a supplementary credit card and they have the same authority on the account that you do, they may also be considered responsible for the debts under the account. In this case, you both will be responsible for the outstanding credit card balance if you file for bankruptcy.
What Happens To Your House If You Declare Bankruptcy And Have A Spouse?
If your house is not exempt from seizure when you file for bankruptcy, it may fall under the control of the Licensed Insolvency Trustee (LIT). But if you own your home jointly with your spouse when you file for bankruptcy, their share of the home will not be under the LIT’s control. That means your spouse’s share of assets won’t be touched.
That said, the LIT may have to liquidate your share of the home equity on a jointly held property to repay your creditors. To avoid liquidation, you may be able to repurchase the equity in the home.
Will Your Spouse Be Affected By Your Bankruptcy Payments?
When you file for bankruptcy, you will still have to make monthly payments if you earn a surplus income.
When you file for bankruptcy, you’re required to submit monthly income and expense statements. If your income exceeds the surplus income threshold, you’ll have to make monthly contributions of a certain amount to your creditors. Your spouse’s income will also be included in the monthly income and expense report, which could impact your surplus income payments.
In terms of bankruptcy payments, however, only you are required to pay up, not your spouse.
The bottom line is this: if your spouse did not co-sign or guarantee your debt, then they will not be affected if you default and file for bankruptcy. Only if your spouse signed the loan as a co-signer or took out the loan jointly with you will they be on the hook for the debt and be affected by your bankruptcy.