Many people are surprised to learn that in Canada spouses do not share responsibility to creditors for each other’s debts unless they have specifically co-signed on joint debts together. Simply put – your spouse is not responsible for paying your creditors for your debts just because they are your spouse.
Although they may not be legally obligated to repay your debts, in some situations your spouse’s assets can be at risk due to actions your creditors may take when collecting on an unpaid debt you owe. A common example would be where a creditor with the “right of offset” withdraws money from your joint bank account. This most commonly occurs in situations where you hold your day-to-day bank account at the same bank where you also owe a debt.
It’s important for you and your spouse to understand that in the event that one (or both) of you are having difficulty in meeting your financial obligations, you may decide to consolidate debt with a Consumer Proposal or file personal bankruptcy independent of each other, or explore options that could be implemented jointly as a couple.
Should you decide to move forward with a formal debt solution such as a Consumer Proposal or declaring bankruptcy, provided there are no jointly held debts, your spouse in no way becomes responsible for debts you are working with a Licensed Insolvency Trustee to legally restructure. Your spouse generally will not be impacted by these proceedings at all.
- In a Consumer Proposal you are setting clear and specific repayment terms on your consolidation offer to your creditors, and there is no automatic provision involving your spouse in any way.
- The exception to this is when a joint Consumer Proposal is filed, allowing spouses (or other closely connected individuals) to deal with all their debts (shared and otherwise) in a single proposal proceeding.
- If you file personal bankruptcy your household income determines the length of time your bankruptcy will last and what your monthly required payments will be over the term of the bankruptcy proceeding.
- Although your spouse may be asked to report their income, they are not obligated to make any financial contribution towards your bankruptcy proceeding, nor undertake any responsibility for the debts being forgiven therein.
Where your spouse can become responsible for debts you owe is:
- If they have specifically taken on a joint liability with you by co-signing, guaranteeing or being a co-cardholder.
- If you separate and debts become divided as “family debt” under BC’s Family Law Act.
By co-signing a debt with another person, you are committing to the lender to repay the debt in full should the other person be unable to do so. Co-signed debts are not divided in a 50/50 responsibility where the maximum requirement to repay would be one-half of the balance if the original borrower defaults on the debt. Rather, most joint debts are structured with “joint and several liability” which means that each person has agreed to repay all the unpaid balance. In the event the original borrower cannot repay the debt in full, the co-signer can be pursued for 100% of the outstanding amounts. This responsibility can occur from joint debt with a spouse, or any other party with whom you are taking on a debt together.
If you and your spouse have joint debts, you may both decide to make individual Consumer Proposals, work together on a joint Consumer Proposal, or declare bankruptcy to deal with joint (and separate) debts you each have. However, there is no legal requirement for both spouses to take action, or even to choose the same debt management solution. For example, one spouse may decide to file a Consumer Proposal to consolidate and cut their debt payments while one files bankruptcy instead, or one spouse may file bankruptcy and the other repays the joint debt if they can afford to do so.
While spouses may not have legal obligations to each other’s debts, sharing a household often means that the stress of a debt problem becomes mutual. If you are concerned about how debt is impacting you, your spouse or your family, don’t hesitate to seek the support of a Sands & Associates debt help expert.
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