Your Spouse and Your Debt
Millions of people across Canada have borrowed money at some point in their lives.
Another interesting statistic is that the majority of all borrowing relates to mortgage debt (69%).
In a nutshell, such liability includes home loans, and also loans used towards deposits for security properties.
Being in debt isn’t an issue as long as the person borrowing the money can afford to meet their repayment obligations.
Of course, unexpected events happen in life, and people’s financial circumstances change all the time.
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When some people’s debt spirals out of control, and they can no longer afford to meet their repayment obligations, they might turn to bankruptcy as a solution to their financial situation.
But, could being married to someone cause complications when thinking about bankruptcy?
And what about when a person has debts, but they haven’t yet formally started bankruptcy proceedings?
For the most part, the answer is no – a spouse isn’t usually liable for their husband or wife’s debts.
How is my spouse not liable for my debts?
Marrying your significant other was undoubtedly one of the best moments in your life.
However, one of the times in your life you’d likely want to forget about is ending up in a position where you owed more than you earned.
If that paints a familiar picture, your financial situation isn’t a unique one.
Sadly, many people end up in a position where their circumstances change, resulting in a negative effect on their finances.
Many people find they end up with debt problems due to unemployment or illness.
And even if you’re eligible for government benefits to ease the financial burden, they are likely not enough to cover your outgoings each month.
If you’re in such a situation, you might be wondering why your spouse isn’t liable for your debts.
After all, you’re married to each other?
Well, from a legal perspective, your spouse can’t be responsible for loans and credit cards you’ve personally taken out in your name.
The same is also true in a reverse situation: you aren’t liable for any debts that are only in your spouse’s name.
Are there any exceptions?
Things are different if you’ve got joint debts.
This is where you’ve both agreed to borrow money together.
Examples of such borrowing include mortgages and joint loans.
So, with that in mind, how are joint debts an exception to spousal debt liability?
When you both agree to co-sign for a loan, the lender has the authority to request payments from you both.
Typically, only one party will provide their bank details for loan repayments to get made.
But, if those repayments continually fail, the lender is legally allowed to pursue the other party for payment.
Lenders like banks and other financial institutions ask both parties to guarantee the loan in case of non-payment.
Another exception relates to credit card debt.
Most card companies offer cardholders the option to issue a credit card in their spouse’s name.
If your spouse got a credit card and made you a named cardholder, they are ultimately responsible for your card debt.
What about joint debts in bankruptcy?
If you’re thinking of filing for bankruptcy and you’ve got one or more joint debts with your spouse, what happens to those debts?
Technically, both you and your spouse are 100% responsible for meeting all repayments on time.
There’s no 50/50 split on joint debts.
When you become bankrupt, your spouse will be liable for the remaining balances of any joint debts.
That’s because they’ve made guarantees to your joint debt lenders that they’ll pay any money back if you stop doing so.
Is bankruptcy right for me?
You may have already done some research and concluded that bankruptcy might be the only way to resolve your current financial situation.
But, when you’re married and have one or more joint debts, things can get complicated.
After all, the last thing you want to do is burden your spouse with total financial responsibility for joint debts such as your mortgage.
Therefore, it makes sense to contact Bankruptcy Canada first to discuss your situation and help you find a suitable solution.
For example, you may find that a Consumer Proposal could work out better for you and your spouse.
Contact us today on (877) 879-4770 to discuss your options.
All telephone calls are confidential, and there’s no risk or obligation.