Bankruptcy & Your Spouse How Does Filing Bankruptcy Impact My Spouse?
Going Bankrupt & Your Spouse
If you’re in a marriage or common law relationship and you decide to declare bankruptcy in Ontario, your spouse won’t be held responsible for any debt of yours that your spouse didn’t sign a contract or agreement to share.
Your creditors may decide to try to recoup owed monies from your spouse when you file bankruptcy.
Whether creditors are successful will depend on which spouse owns said debt.
A personal bankruptcy filing won’t directly impact your spouse, since your debts are your own responsibility.
For this reason, it’s possible for one spouse to file bankruptcy without impacting his or her spouse.
It’s also possible for one spouse to file personal bankruptcy without harming the credit rating of the other spouse.
There is a belief that both partners in a marriage or common law relationship will be responsible for debt, since collection companies tend to threaten to seek payment from spouses when they phone during collection actions.
The truth is that collection companies don’t have the legal right to collect from spouses, unless they have co-signed on debts.
Has Your Spouse Co-signed for Debt?
If you spouse has co-signed for debt or guaranteed debt, then your spouse will be held responsible for that debt.
Your spouse will need to pay off that loan when you file personal bankruptcy Ontario.
When your spouse co-signs for a loan or there is a credit card on one account, both spouses are legally responsible for the debt.
With your bankruptcy, your spouse will become solely responsible for that debt, as he or she signed for it.
There are also possible future ramifications for you and your spouse when you declare personal bankruptcy.
For example, if you want to co-sign a loan in the future, co-signing a loan with an affordable rate of interest might not be possible, until your credit has been rebuilt.
It takes 6 to 7 years for a bankrupt person to get the R9 credit rating (the lowest possible rating) cleared from his or her credit report.
Whether it takes 6 or 7 years depends on where in Ontario the personal bankruptcy was filed.
The R9 rating means, “bankrupt” and it does make it harder to find affordable credit.
With a second bankruptcy, an R9 rating stays on the bankrupt’s credit report for 14 years.
What If You Own Property as A Couple?
This may not be a big issue.
If property that you and your spouse jointly own is within the provincial bankruptcy exemption limit, there’s nothing to worry about.
If you own property that’s above that limit, your part of said assets may need to be sold during the personal bankruptcy.
This is going to affect your husband or wife.
In general, the debts that you have will be considered as separate from the status of your relationship.
A Consumer Proposal Is Another Option
If you think things over and decide that exploring non-bankruptcy options is appropriate, for yourself and your spouse, you may want to consider a consumer proposal.
A consumer proposal is a legal agreement to pay creditors some of what you owe them, rather than all of what you owe them.
To create a consumer credit proposal offer, you’ll work with a Licensed Insolvency Trustee.
Licensed Insolvency Trustees file and administer consumer proposals, in addition to bankruptcies.
Your creditors will need to review your consumer proposal after your LIT files it with the Office of the Superintendent of Bankruptcy.
If your creditors agree, or no creditors object by the deadline, the agreement will go into force.
You’ll make monthly payments until the terms of the consumer proposal are completed.
At that point, the balance of the debt (what your creditors agreed that you don’t have to pay them) will be discharged.
You’ll pay part of what you owe, and your assets will remain protected.
A lot of Canadians are choosing consumer proposals over bankruptcy lately.
Talking to a Licensed Insolvency Trustee is the best way to gather information that helps you to make a wise choice about your financial future.
LITs handle more than bankruptcies.
They offer advice about bankruptcy, consumer proposals and other debt management options.
There is no question about bankruptcy that a LIT can’t answer.
When you have a consultation with a Licensed Insolvency Trustee, you’ll get hard facts.
You’ll also be treated respectfully.
LITs are regulated federally.
They meet high standards in order to get their licenses from the Office of the Superintendent of Bankruptcy.
Contact a LIT today for a no-obligation consultation.