What Are The Consequences For My Spouse If I Declare Bankruptcy?

Understanding the Impact of Bankruptcy on Your Spouse

Financial difficulties can strain any relationship. When one spouse considers filing for bankruptcy, it’s common for the other to worry about the potential fallout. Therefore, it’s important to understand What Are The Consequences For My Spouse If I Declare Bankruptcy. This article aims to dispel common misconceptions and provide clarity on this topic.

1. Does My Bankruptcy Affect My Spouse’s Financial Status?

The short answer is no. When one person files for bankruptcy, it does not automatically trigger bankruptcy for their spouse. However, the situation can become more complex if you share joint debts or if your spouse has co-signed on any of your debts.

2. Joint Debts and Bankruptcy

If both partners are burdened by debts, either separate or joint, they may choose to file for bankruptcy simultaneously. This decision, however, is entirely up to the couple and not enforced by law. There are also alternatives to consider, such as a Consumer Proposal.


What is a Consumer Proposal?

Unlike bankruptcy, a Consumer Proposal is a debt consolidation method facilitated by a Licensed Insolvency Trustee. It allows you to repay a portion of your consolidated debts based on your ability to pay, with the remaining balance being forgiven by your creditors. Learn more about Consumer Proposals.


3. Responsibility for Unpaid Debts

Marriage or a common-law partnership does not automatically make you liable for your spouse’s unpaid debts if they file for bankruptcy. The responsibility does not transfer unless you have co-signed on the debts included in your spouse’s bankruptcy. In such cases, creditors can demand payment from the co-signer.

4. Effect on Credit Score

Your credit score and history remain unaffected by your spouse’s bankruptcy, provided the debts forgiven under the bankruptcy were solely your spouse’s.

4.1 Duration of Bankruptcy on Credit History

Bankruptcy reflects on a credit history for six years. However, it’s possible to obtain new credit within two to three years or even less. Many individuals secure new credit cards, mortgages, or vehicle financing within a few years of bankruptcy discharge.

5. Impact on Assets

The assets you solely own are not at risk during your spouse’s bankruptcy. It’s essential to understand that bankruptcy doesn’t automatically lead to asset seizure. In certain provinces, like BC, many assets are exempt from seizure and safe from creditors.

6. Asset Transfers and Bankruptcy

It’s not advisable to sell or transfer assets to shield them from creditors if bankruptcy seems imminent. The Licensed Insolvency Trustee may investigate and report such transactions.

7. Impact on Income

Your income remains yours during your spouse’s bankruptcy and continues as usual. However, your spouse’s bankruptcy may require a monthly budget detailing the household’s income and expenses. This is used to compute “surplus income” and determine how much your spouse contributes towards their bankruptcy.

8. Income Disclosure

While the person filing for bankruptcy must report and verify household income and expenses, the non-bankrupt spouse is not required to disclose their income. However, this decision impacts the bankrupt individual as it affects the calculation of their surplus income.

9. Separate Finances in Bankruptcy

Despite sharing a household, a couple’s finances remain separate during bankruptcy. Therefore, if you or your spouse are contemplating bankruptcy, it’s beneficial to discuss this with a Licensed Insolvency Trustee together.

10. Conclusion

Bankruptcy is an unfamiliar legal process and can feel overwhelming. However, with professional help from Licensed Insolvency Trustees, you can navigate this process smoothly.

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