My partner filed Bankruptcy; do I need to as well?

It is a common misconception that if one partner in a marriage files Bankruptcy, the other needs to as well. However, this isn’t always the case: there is no law that says both parties must file Bankruptcy. But it is a timely opportunity to review your financial affairs and consider exploring options to deal with your debt.

Of course, there are exceptions to every rule — and there may be some situations where also filing Bankruptcy may be highly advisable, if not unavoidable. Let’s look at two potential scenarios.

1. Joint debts

Your partner’s Bankruptcy will not release you from the balance owing on any debts you are jointly responsible for. Rather, responsibility for these debts would fall squarely on your shoulders. If you don’t or can’t repay them, it can affect your credit rating and the creditors can take legal action against you.

If you’re unable to repay these debts, co-filing Bankruptcy with your spouse — or filing your own — may be the best way to eliminate these joint debts and provide the financial fresh start you need.

What is a joint debt?

A joint debt is one which you and your partner (or anyone else for that matter) collectively applied and accepted responsibility for. Most likely you would have had to attend the lender together to set up the account, or at the very least both have signed the contract together. Being an authorized user on your partner’s credit accounts does not necessarily qualify as a joint debt.

If you are unsure whether you’re a joint owner of any debts with your partner, contact the lender to confirm.

2. You’re also insolvent

Your partner’s Bankruptcy will also not release you from any debts that are in your name only. If you find yourself struggling to meet your monthly payment obligations, it may be advisable to discuss your options with a Licensed Insolvency Trustee.

The following questions can help you determine whether you’re insolvent:

  1. What debts do you have, what is their value and what are their monthly payments?
  2. What are your monthly household income and expenses?
  3. What assets do you own and what is their estimated value?

Take stock of your situation

Make note of every debt you owe. This includes debts to formal lenders (e.g. credit cards, loans, lines of credit, etc.), government debts (e.g. taxes, student loans, etc.), and personal loans you owe to friends or family members. Don’t leave anything off your list. 

If you’re unsure of what you owe, it’s okay to phone a creditor and ask. We also recommend requesting a copy of your credit reports from Equifax and TransUnion to verify your information.

Track your spending

Monitor your household earnings and spending habits. How much income is coming in and where does it go? Are you able to pay your debts on time and in full? Can you afford to pay more than the minimum payment? If your basic expenses (including debt servicing costs) are greater than your income, this is a strong indication you may be insolvent.

Tally your asset values

List your main assets and your best estimate of their resale value. It may be helpful to cross reference some online classifieds and auction sites to get an accurate benchmark. Items worth listing here include:

  • Vehicles (including your primary automobile, recreational vehicles, bicycles, etc.)
  • Jewelry
  • Household goods including Electronics (e.g. computers, tablets, smartphones, televisions, videogame consoles, etc.)
  • Tools
  • Investments and savings (e.g. RRSP, TFSA, emergency fund, stocks / bonds, etc.)

Hypothetically, would the potential revenue from selling or cashing out these assets be enough to pay off all your debts — or at least significantly reduce the timeline to pay them off? But don’t do anything yet. First ask yourself: How would selling these items impact your life and your future?

Understanding Bankruptcy exemptions

Certain property is protected in a Bankruptcy to preserve your quality of life and ability to recover financially. This includes most — if not all — of your registered retirement savings. Each province also has specific exemptions around property like your home, primary vehicle, household goods, tools, and more.

Take a moment to review the relevant exemptions in your province. And don’t sell any high value assets or cash out any investments to repay your debt until you’ve talk to a Licensed Insolvency Trustee to understand how these exemptions apply to you.

Compare your options

Even if you are struggling to repay your own debts, Bankruptcy may still not be your best option. Use the MNP Debt Calculator to compare the five most common strategies and see which one would be (a) the most cost effective and (b) provide the quickest route to the relief you need.

Depending on the severity of your own situation, you may also want to postpone taking any action until you understand how your partner’s Bankruptcy impacts your family’s finances. With their debt out of the way, he or she may be able take on more of the household expenses and provide the financial cushion you need to address your debts.

But you don’t have to wait to speak with a Licensed Insolvency Trustee. Take advantage of MNP’s no-obligation Free Confidential Consultation to get a clearer picture of your financial situation and learn your options.