Money is the most common cause of problems in marriage and relationships, and arguing about money is the top predictor of divorce.
If a couple has shared debts, both are equally responsible for paying their creditors back regardless of who ran up the debt. When it’s only one person in debt, the other isn’t liable for the debts just because they’re married or in a common-law relationship.
This article examines who is responsible for debts when someone files a consumer proposal and how shared debts can be cleared in a consumer proposal.
Will a consumer proposal affect my spouse?
A consumer proposal is a legally binding debt settlement arrangement to resolve unsecured debts. You repay your debtors a portion of what they’re owed in return for debt forgiveness.
If debts are in your name
A consumer proposal will not affect your spouse as long as your bills and debts are in your name. The debts belong to you, so your creditors can only seek payment from you. And similarly, one person’s credit score is not impacted by someone else’s debts.
When you file a consumer proposal, both your and your spouse’s assets are valued to determine how much money you can pay your creditors. Creditors must be offered more money than they receive in a bankruptcy filing.
Only your share of jointly-owned assets with your spouse is considered. Assets owned outright by your spouse are disregarded.
Your spouse’s income may impact the amount you pay in your consumer proposal, but refusing to disclose their income may increase its cost.
If debts are shared
If your debts are shared, co-signed or guaranteed, your spouse becomes responsible for the entire debt when you file a consumer proposal, and failure to pay can negatively impact their credit score.
Fortunately, there is a solution for shared debts: a joint consumer proposal.
What is a joint consumer proposal filing?
A joint consumer proposal lets two people file a consumer proposal together and wipe out both personal debt and shared debts like joint credit cards, joint loans, co-signed loans and joint bank accounts.
Married couples, common-law relationships or family members with joint debt can file one proposal together instead of two to simplify the process and make it more appealing to creditors.
Filing a proposal jointly will damage both credit scores. It will appear on your credit report three years after completion, making it harder to borrow money.
Remember that you don’t need to file a joint consumer proposal to deal with your debts. A Licensed Insolvency Trustee (consumer proposal administrator) can decide if a joint proposal suits both parties and your creditors’ best interests.
Who can file a joint consumer proposal?
To file a joint consumer proposal, each person must meet the individual eligibility requirements to file:
- The two individuals have combined unsecured debts of less than £500,000.
- You both live in Canada (a permanent resident or under a work permit or another status) or own property in Canada.
- Both individuals are unable to pay their bills as they become due.
- Each person can afford to make a monthly payment toward the debt.
The advantages of a joint consumer proposal
- The debt limit increases from $250,000 to $500,000 (excluding a mortgage).
- Suitable for family members where household debt has been accumulated together.
- It can cost less, so more money is available to offer your creditors. This increases the chances of a successful consumer proposal while keeping your payments affordable.
The disadvantages of a joint consumer proposal
- You are equally responsible for repayments; if one person stops making payments, the other person is legally accountable.
- If you miss three payments, your proposal is annulled.
- A consumer proposal affects your credit score and appears on your credit report.
Debt and divorce in Canada
If you have separated from your partner or divorced and file a consumer proposal, your creditors will pursue your spouse or partner for the entire debt.
Shared debts can be eliminated in an individual or joint consumer proposal filing. You must trust the other person to meet their obligations to ensure a successful joint consumer proposal.
A Licensed Insolvency Trustee can advise whether filing a joint proposal is the best debt solution for your circumstances.
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