Unforeseen financial crises may thrust individuals into a state of insolvency, forcing them to explore various debt solution alternatives. One such option is filing a Consumer Proposal. Often, questions arise about the potential implications of such an action on joint credit cards. This article aims to illuminate the repercussions of a joint credit card when one party files a consumer proposal.
Understanding Joint Credit Cards
What is a Joint Credit Card?
A joint credit card is a shared account where two or more parties, usually family members or business partners, share equal responsibility for the debt incurred on the card. The understanding is that all parties are responsible for repayments, regardless of who incurred the debt.
How Do Joint Credit Cards Work?
Each party on the joint credit card is both “jointly” and “separately” responsible for the debt. This means that each person is liable for the total debt, regardless of who spent the money. This obligation continues until the debt is fully paid off, irrespective of the relationship status among the cardholders.
Filing a Consumer Proposal: What Does it Mean?
Understanding a Consumer Proposal
A consumer proposal is a legally binding agreement drafted by a Licensed Insolvency Trustee (LIT). It’s an arrangement between you and your creditors, proposing to pay back a portion of your debt over time, thereby providing some financial relief.
Who Can File a Consumer Proposal?
Any individual facing financial hardships who cannot repay their debts, but has the capacity to pay a portion of their debt, can file a consumer proposal. The total debt should not exceed $250,000 (excluding mortgages on the principal residence).
Implications of Filing a Consumer Proposal on Joint Credit Cards
Impact on the Debtor
When a person files a consumer proposal, all their unsecured debts, including those from joint credit cards, must be included. This action ends their legal obligation to repay the joint debt.
Impact on the Co-borrower
The co-borrower’s responsibility to repay the debt remains unchanged. If the co-borrower continues to make regular payments, their credit score will remain unaffected. However, if they fail to do so, their credit rating may suffer.
How to Mitigate the Impact of a Consumer Proposal on a Joint Credit Card
Open Communication
The debtor should inform the co-borrower about their intention to file a consumer proposal. This gives the co-borrower time to make arrangements to handle the joint debt.
Co-borrower’s Options
The co-borrower might consider transferring the joint debt to a new account in their name only or paying off the debt outright to avoid any impact on their credit rating.
Understanding Your Rights and Responsibilities
The Debtor’s Rights
Filing a consumer proposal provides the debtor with legal protection from debt collectors. It also allows them to retain their assets and avoid bankruptcy.
The Debtor’s Responsibilities
The debtor must include all unsecured debts in their consumer proposal, make regular payments to their LIT, and attend two mandatory financial counselling sessions.
Consequences of Not Meeting Your Obligations
Consequences for the Debtor
If the debtor fails to make three payments or misses a payment for three months, the consumer proposal can be annulled. This could lead to bankruptcy.
Consequences for the Co-borrower
If the co-borrower doesn’t continue making payments, their credit rating will be negatively affected, and they may face legal action from the creditors.
Conclusion
The Repercussions of a Joint Credit Card when Filing a Consumer Proposal are significant and should not be overlooked. Both parties should understand their rights and responsibilities, and consider seeking financial advice before proceeding. While a consumer proposal can provide debt relief for one party, it can place a substantial burden on the co-borrower. As such, open communication and a clear understanding of the implications are critical when navigating this complex financial landscape.
