You may worry that filing for bankruptcy will negatively impact your spouse or common-law partner and damage their financial health.
However, filing for bankruptcy won’t affect your spouse or common-law partner unless you have a co-signed loan together, shared debts, or guaranteed payment of your spouse or partner’s debt.
If these scenarios apply to you, keep reading to learn more.
How does bankruptcy affect my spouse in Canada?
Filing bankruptcy doesn’t affect your spouse. If you do not have shared, co-signed or guaranteed debts, your spouse or common-law partner is not liable, and the debts are yours alone. Your creditors cannot demand that your spouse pays for your debts, and their credit score is unaffected.
The only exceptions are shared joint debts or if you have guaranteed payment of your spouse or partner’s debt.
For example, both parties are responsible for joint credit cards and co-signed loans. If one person files for bankruptcy, the other is liable for the total amount of the debt.
Check that you don’t have shared debt by looking at your statements, calling creditors or checking your online accounts.
If you have shared debts, it sometimes makes sense to file a joint bankruptcy. This lets two people file for bankruptcy together as one file because they share the same debts. Both parties must share equal responsibility for most of the debts.
Bankruptcy and future joint credit applications
Bankruptcy appears on your credit report for at least six years, which can affect the ability to apply for credit together in the future. However, this doesn’t affect individual applications.
Bankruptcy and household income
Your spouse is not required to pay anything toward your bankruptcy. However, you must submit proof of your monthly household income and expenses to determine if you need to make surplus income payments.
Bankruptcy with a joint mortgage
If you jointly own your home and file bankruptcy, you owe creditors a portion of the equity in the house. The other person keeps their share of the home equity; it does not go to creditors. This process may also apply to other assets, such as a vehicle.
Filing for bankruptcy in Canada does not affect your spouse or common-law partner unless you have shared debts, co-signed debt, or guaranteed payment of your spouse or partner’s debt.
Find out if you have joint debts by contacting the creditors directly. If you are still unsure, talk to a Licensed Insolvency Trustee.
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