Filing joint bankruptcy sometimes makes sense if you have joint debt with someone else.
This article will examine how to file joint bankruptcy and its advantages and disadvantages.
What is joint bankruptcy?
Joint bankruptcy is when two people file for bankruptcy together because they share the same debts. To qualify, both parties should share equal responsibility for the majority of the debts.
Paragraph 155 (f) of the Bankruptcy and Insolvency Act says:
in such circumstances as are specified in directives of the Superintendent, the estates of individuals who, because of their relationship, could reasonably be dealt with as one estate may be dealt with as one estate.
In other words, if your finances are connected, it makes sense to file one bankruptcy instead of two.
What happens to joint debt in bankruptcy?
If a married couple or a common-law relationship have a co-signed bank loan or shared credit card, they are jointly liable for the debt. If one person cannot pay, the lender can request payment from the other.
Both parties could file bankruptcy together because one person’s debt is similar to the other. Some individual debts can also be included.
When you file a joint bankruptcy, you pay what you can afford, but some assets can be sold. Each person receives creditor protection; interest is frozen, collections stop, and wage garnishments are lifted.
If both parties meet the bankruptcy terms, they are discharged from bankruptcy, and the debts included in the joint bankruptcy are forgiven.
If family members share debts, a joint bankruptcy would let them combine their income and expenditure as one household.
You are not required to file a joint bankruptcy. You can individually file for bankruptcy regardless of your circumstances. If one person files, it will not necessarily affect your spouse or partner.
Who can file a joint bankruptcy?
To file for bankruptcy, each person must meet the individual eligibility requirements to file:
- You must owe at least $1,000 in unsecured debt.
- You must either live in Canada, do business in Canada or own property in Canada.
- You cannot make payments to your unsecured creditors as they become due.
- Your debts exceed the value of your assets.
If you are interested in filing a joint bankruptcy, arrange a consultation with a Licensed Insolvency Trustee.
The advantages of joint bankruptcy
- The debt limit increases from $250,000 to $500,000 (excluding a mortgage).
- Ideal for a family if the household debt has been accumulated together.
- It can cost less, meaning more money may be available to offer your creditors. This increases the chance of success while keeping your payments affordable.
The disadvantages of joint bankruptcy
- You are equally responsible for the payments, so if one person stops making payments, the other person is liable.
- Each person must complete their bankruptcy duties to be discharged.
- Bankruptcy appears on both credit reports, and your credit score will drop.
Can guarantor debts be included in joint bankruptcy?
If you co-signed or guaranteed payment of another person’s debt, and both parties want to alleviate these debts, then joint bankruptcy might be a viable option.
How to file for joint bankruptcy
A Licensed Insolvency Trustee must administer joint bankruptcies in Canada. Trustees have the knowledge, experience and skills to help with debt issues.
Filing a joint bankruptcy isn’t suitable for everyone. It depends on the personal and financial relationships of the people involved. You must trust the other person to meet their obligations.
If two parties share the same debts, joint bankruptcy can sometimes be a simple way to eliminate them. A Licensed Insolvency Trustee can advise on the best approach.
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