Bankruptcy and Common-Law Partner
Couples that live together – but are not married – are legally referred to as common-law partners.
A frequent concern for people with debts is what happens to their common-law partner if they file for bankruptcy.
Will your partner be affected by the bankruptcy proceedings, or does everything stay separate?
The simple answer to the question is yes and no.
Yes, your common-law partner will be impacted by your bankruptcy, but they will also not be affected in certain ways.
The best way to understand this is to explain it in more detail.
Will your common-law partner also be declared bankrupt?
No, if they have their own personal finances, they won’t be impacted by the declaration of bankruptcy.
You will have a bankruptcy on your credit report for at least six years, but they won’t see any changes.
This is because the debts are your fault if they are in your name.
As long as their name isn’t tied to any of the debts, they will not have to deal with carrying a bankruptcy on their credit report.
This means they are free to apply for credit and go about their life as usual.
They also don’t have to attend credit counselling meetings or abide by the rules set out in your bankruptcy.
Does their income affect my bankruptcy?
This is where things get a bit difficult.
While your common-law partner won’t have to declare bankruptcy, their income does play a significant role in your bankruptcy proceedings.
Under the current rules, you are allowed to keep some of your income every month – after filing for bankruptcy.
Specific limits are set, but if your income exceeds these limits, you have to make surplus payments.
Here’s where your common-law partner matters as ‘income’ is defined based on your family size.
Legally speaking, this refers to how many people live in your household.
If you lived alone, the limit is $2,243 per month.
But, if you live with your common-law partner, the limit increases to $2,793.
The more people in your household, the higher the limit.
If your combined income exceeds the limit, you have to make surplus payments totalling half of what you’re over by.
Let’s say your combined earnings mean you are $500 above the threshold, this leads to surplus payments of $250 per month.
In this scenario, it makes sense that you both contribute to these payments as you are both responsible for being over the limit.
If your combined earnings are under the limit for your household size, then you don’t have to make any surplus payments!
To summarize, your common-law partner won’t have to declare bankruptcy or have it on their credit report.
However, they do contribute to your household income, meaning they may impact surplus payments.
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