My spouse wants to declare bankruptcy and I don't, what are our options?

Debt problems can strain relationships and cause stress for the entire family. If your spouse has met with a Licensed Insolvency Trustee and is (or is considering) filing a Bankruptcy, the impact on you will depend on the extent of your joint debt.

Individual debt remains individual

One common misconception is marriage automatically makes both spouses responsible for each other’s debts. However, debts are generally personal in nature — you are only liable if you signed the credit application solely, acted as a co-signor, or personally guaranteed the debt.

If all your spouse’s debt is solely in their name, their Bankruptcy should not affect you or your credit rating.

If your only joint debts are secured liabilities such as a vehicle loan and/or mortgage, this may also be fine, as most people continue to pay these types of loans during their Bankruptcy.

Concentrated spouses sitting on couch at home discussing with laptop and calculator

Unsecured joint or guaranteed debts

The situation is more complex if you have co-signed or personally guaranteed some or all of your spouse’s unsecured liabilities.

Your spouse will have protection from their unsecured creditors from the moment their Bankruptcy is filed. However, this stay of proceeding will not extend to you as a co-signor or guarantor. Creditors may continue to pursue you for repayment until you either repay the debt or file a Bankruptcy or Consumer Proposal.

Consider having your financial situation assessed by a Licensed Insolvency Trustee at the same time as your spouse if you have significant unsecured joint debts such as credit cards, personal loans, or unsecured lines of credit. It is possible to file a joint Bankruptcy or joint Consumer Proposal in circumstances where your debts are “substantially the same” and it is determined to be in your and your creditors’ best interest.

It is also possible for one spouse to file a Bankruptcy and the other a Consumer Proposal. Both types of proceedings provide protection from unsecured creditors — though the processes and responsibilities are quite different.

Impacts on shared assets

A bankrupt’s assets vest with the Licensed Insolvency Trustee, subject to provincial exemptions. If your spouse files a bankruptcy and there are no jointly held assets, there should be no issues. Your assets, as the non-bankrupt spouse, do not fall under the control of the Trustee.

However, the Trustee will have an obligation to liquidate the bankrupt’s share of equity in any jointly held, non-exempt property. In some cases, the bankrupt spouse may be able to repurchase equity in property that would otherwise be liquidated by the Trustee. The spouse experiencing financial difficulty may also consider filing a Consumer Proposal instead if possible — as this process protects assets and only requires periodic (usually monthly) payments and two debt counselling sessions.

Making the right decision for individuals and families

Every person experiencing financial difficulties due to debt deserves a second chance and the opportunity for a financial fresh start.

If your spouse is considering options to address their unmanageable debt, consider joining them for a Free Confidential Consultation with a Licensed Insolvency Trustee. This conversation will help you understand the options available and gain peace of mind about the potential impacts a Bankruptcy or Consumer Proposal will have on you.

Couples who are freed from the constant stress and conflict of their financial burdens often find they’re better able to communicate, make shared decisions, and enjoy the things that make marriage so worthwhile. A Licensed Insolvency Trustee can help you understand all your debt options and make an informed decision on your best path forward individually and collectively as a family unit.

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