Will My Personal Bankruptcy Affect My Spouse?

When you file personal bankruptcy, it does not directly affect your spouse or reflect on their credit report. Your bankruptcy is between you and your creditors. Your spouse is not liable for your debts simply because he/she is your spouse. However, your bankruptcy can have an impact on the other person in the following ways:

Joint Debts

If you and your spouse obtain credit together, both of you are responsible for repaying the debt. If one party files personal bankruptcy, the other person is still responsible for the entire debt.

Joint Assets

When you file personal bankruptcy, you are assigning all of your assets to your Trustee. The Trustee has a responsibility to recover the value of those assets for your unsecured creditors.

For example – if you jointly own a home with your spouse and it is determined there is $10,000 of equity in the home your Trustee must realize on your share of the equity, which in this case, is $5,000. It does not mean that you will have to sell your home; it means you will have to pay an additional $5,000 into your bankruptcy estate. This payment to the Trustee will be another obligation for the household that the non-bankrupt spouse needs to consider.

Borrowing

Financial institutions sometimes base their lending decision on household income. The most common example is when granting a mortgage.

The higher the household income, the more you can borrow. However, if they consider your income, they will also consider your credit history. So if your income is required to purchase a home, it’s not likely that you will be approved, at least not until you have completed your bankruptcy, and you have rebuilt some positive credit history. They can choose to approve the mortgage based on your spouse’s income alone; however, it may limit how much you can afford to spend on a home.

Surplus Income Contributions

When you file personal bankruptcy, you may be required to make monthly payments based upon a calculation that depends on several factors; your income, the income of other household members, and the number of people in the household, among other variables. As such, your spouse’s income can result in higher payments to your bankruptcy estate. The Surplus Income calculation can be complicated, so you need to review it with your Trustee.

Separation and Divorce

Family law and bankruptcy law don’t necessarily work well together. In family law, it typically doesn’t matter who owns an asset; when you split, everything is supposed to get divided equally regardless of who owns the assets. When you go bankrupt who owns the assets does matter, and when or if the ownership changed.

It’s important to realize that the circumstances and outcomes of bankruptcy are not the same for everyone. You should consult a Licensed Insolvency Trustee for a detailed review of your financial situation.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

• You won’t be stuck in an assembly line process.

• You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.

• We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

• We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.

We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.