Grasping Debt Responsibility for Couples & Families
As Licensed Bankruptcy Trustees, we regularly encounter individuals anxious about another person’s debt issues or how their own financial crises may affect someone close. These inquiries often come from spouses fearful about the potential impact of their debt on their partner and family. Understanding the intricacies of debt liability for couples and families is essential. No automatic responsibility is created by relationships when it comes to repaying someone else’s debts.
The Question of Spousal Debt Responsibility
A widespread myth is that upon getting married or entering a common-law relationship, partners assume legal responsibility for each other’s debts. Relationships alone do not legally obligate you to repay someone else’s debt, but a responsibility for debts may be triggered by:
- Co-signing on or co-borrowing debts together; or,
- Debts being divided in a separation or divorce according to BC’s Family Law Act.
A common example of this ‘bystander effect’ is where a couple holds a joint bank account at the same financial institution where one owes a debt, and the creditor exercises their “right of offset” by withdrawing money they are owed from the joint account.
“I did not understand that I could have declared bankruptcy and settled my debt separately from my spouse while married and then only he would have remained in debt. I believed we both had to declare at the same time if we were married and shared the debt.”
– 2020 BC Consumer Debt Study
The Concern of Family Money Problems
Just as your spouse or common-law partner is not legally responsible to your creditors for paying your debts (unless they are a co-signer/co-borrower), neither are other family members responsible solely by virtue of being related to you.
The Matter of Co-Signed and Joint Debt
Co-signed/joint debts come in many forms, including loans, credit cards, leases, mortgages, and more. By co-signing on a debt with someone (related or not), you become equally responsible for paying back 100% of the full balance due if the other person does not pay.
Debts in the Face of Divorce
Separation or divorce can trigger a division of ‘family debts’ in BC, according to BC’s Family Law Act. Upon separation, family debts are shared equally unless:
- You and your spouse have made a different agreement about dividing debt between you; or
- A judge orders a different division of family debts.
Regardless of the outcome of your separation or divorce, the creditor who is owed the debt will still consider the person who signed for the debt responsible for repaying it and will seek payment as per the lending agreement/terms.
What Happens to Your Debt When You Die?
The death of a loved one does not transfer their debt to someone else personally. A co-borrower’s obligation for repaying joint or co-signed debts will remain, but if a person was not responsible for your debts when you were alive, they will not become responsible upon your death.
Will my Children Have to Pay my Debt When I Die?
This is untrue – neither children (nor spouses or other family members) inherit a personal liability for paying your debt when you die. Knowing is not owing! Managing your estate planning is best done with the help of a BC lawyer who specializes in wills and estate planning.
Reaching Out for Professional Debt Help
If you are worried about how to manage your debts, are unsure as to your responsibility for repaying a debt, or are struggling with debt-stress, a BC Licensed Insolvency Trustee can provide guidance.
Risks of Self-Assessing Debt Solutions
Interpreting the laws around consumer debts can be complicated, and many people misunderstand their rights and responsibilities when it comes to dealing with debt.
Impact to Your Spouse of Bankruptcy or Consumer Proposal
Many people considering a formal debt management solution such as a personal bankruptcy or Consumer Proposal worry about a potential impact to their spouse or family. The good news is that not only can you take steps to legally deal with your debt independently of your spouse, but your decision to claim bankruptcy or make a Consumer Proposal does not transfer responsibility of those debts to your spouse either.
Solutions to Deal with Joint Debts
There are options that can help address joint debts such as non-borrowing consolidation with a Consumer Proposal or declaring bankruptcy.
Non-judgmental support, and solutions that can offer you a financial fresh start. You deserve to live with dignity, and without debt and its overwhelming stress.
