Your Spouse Is Filing For Bankruptcy
Sometimes couples face a dilemma when one spouse is struggling financially, but the other is steady, or even flourishing.
If the spouse in trouble decides to file for bankruptcy, the other panics, wondering if and when their credit rating will be ruined, or whether their assets might be seized, or worse, if they have to pay off debt they did not incur.
Many clients ask us, what happens to me if my spouse goes bankrupt?
The short answer is “nothing,” but that’s a qualified “nothing,” — in other words, there are exceptions.
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First, the good news: If your spouse gets into deep financial trouble, you are not responsible for paying it off, for example, their credit cards.
If they bring debt into your marriage and it’s in their name only, you are not responsible for it.
Collection agencies may threaten that the sky will fall if you don’t pay your spouse’s debts, but that is simply a form of intimidation meant to frighten you into paying.
And if you make one payment, those agencies will assume you can make another, and will keep calling.
Don’t do it — even if you want them to stop calling, even if your heart is in the right place and you want to help — don’t start making payments, or you may never be able to stop.
If your partner brought debt into your union, it is their responsibility, not yours.
They must pay it off, or declare bankruptcy.
Preserving Your Own Credit
If that’s what they decide to do, we at Bankruptcy Canada can help.
And we can also help you navigate the difficult terrain of keeping what’s yours yours, and not seeing your credit rating damaged in the process.
There are a few grey areas worth noting here.
Let’s say you had money and a good credit rating when you got married, but your spouse didn’t.
To “even things up,” you decided to give your spouse a supplementary card on one of your credit cards.
Because it’s your name on that account, but your partner has a card, it is you and you alone who are on the hook for the monthly balance.
If your spouse files for bankruptcy, that card will not be included in their list of creditors because their name is not on the account.
You still have to pay it.
What happens if the debts are joint, say, perhaps a mortgage?
If the house is in both your names, if your name appears on the deed, you are still obliged to make the payments.
Even if your spouse files for bankruptcy, you pay the mortgage or you risk your home being considered an asset of theirs that might be sold to pay creditors.
Before your spouse files for bankruptcy, it is worth considering putting such a sizable asset into your name only.
It’s a legal tactic that can help protect you from the fallout of your spouse’s bankruptcy.
Their bankruptcy may affect you in the future if you try to purchase something together that requires a loan or a mortgage, like a home, new business, cottage or car.
If you buy it jointly and your partner has not been discharged from the bankruptcy for seven years, it’s likely that one of two things will occur: either the lending institution will ask that the property be in your name only, or, if you insist that it be joint, the interest rate charged may be higher because of your partner’s bankruptcy.
The lending institution is within its rights to refuse a loan or any type of credit to someone who has not been discharged for seven years.
Hence, putting the acquisition in your name only — at least temporarily — might be the most prudent move.
Dealing With Money Troubles
Money troubles are a terrible source of stress for any couple.
But when one is solvent and the other files for bankruptcy, it can put even greater pressure on the bond between you.
Today, there are ways to avoid this uneven and unbalanced scenario.
For example, consider signing a prenuptial agreement before you get married; they are a common sense solution for keeping what is yours separate from what is your partner’s.
That way, if your spouse does have to file for bankruptcy, there is a clear, legal division of assets that will never be called into question.
Financial strain is one of the biggest factors Canadians cite when asked about marital breakdown.
If your spouse decides to declare bankruptcy, be sure you consult an expert, like the counsellors at Bankruptcy Canada, to find out precisely what your rights — and responsibilities — are once the papers are signed.
Money woes don’t have to break you up, but understanding the consequences of your spouse’s bankruptcy is vital if you are to cope with them.
It’s important that you and your spouse talk through the situation thoroughly before taking any concrete steps, and once they’ve made the decision to file for bankruptcy, that you undertake the journey with them.
You can only do that, and survive as a team, if you’re both fully cognizant of the rules and ramifications.
Your credit and assets can be protected, but you need to be aware of what bankruptcy means for your spouse’s future, and, therefore, your own.
Contact Us Today
Contact the counsellors at Bankruptcy Canada today and let us help you through this, and answer any questions you may have about your partner’s impending bankruptcy.
We offer discreet, thorough advice in all our confidential consultations.
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