Will My Personal Bankruptcy Affect My Spouse?
When you file a personal bankruptcy it does not directly affect your spouse or reflect on their credit report. Your personal bankruptcy is between you and your creditors. Your spouse is not liable for your debts simply because he/she is your spouse. However, your personal bankruptcy can have an impact on the other person in the following ways:
Joint Debts - If you and your spouse obtain credit together then both of you are responsible to repay the debt. If one party files a personal bankruptcy the other person is still responsible for the entire debt.
Joint Assets - When you file a 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 has an obligation to realize on your share of the equity which in this case is $5,000. This does not mean that you will have to sell your home, it simply means that you will have to pay an additional $5,000 into your bankruptcy estate. This will be an additional 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 take into consideration your income they will also take into consideration your credit history. So if your income is required to purchase a home then it’s not likely that you will be approved, at least not until your bankruptcy has been discharged 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 a personal bankruptcy, you may be required to make monthly payments based upon a calculation that is dependent upon your income, the household’s income and the number of people in the household, among other variables. As such, your spouse’s income can result in higher payment for you while bankrupt. This can be a complicated calculation so you really need to review the calculation with a trustee. For more information read our “Surplus Income” blog.
Separation and Divorce - Simply said, family law and bankruptcy law don’t necessarily work well together. In family law, it typically doesn’t matter who has title to an asset; when you split, everything is supposed to get divided equally regardless of who has title to the assets. This is not necessarily the case when you go bankrupt as who has title to assets does matter as well as when title 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 (LIT) focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses. We offer free consultations to review your personal financial situation and practical debt resolution options. Contact us to discuss your situation over the phone or book an appointment to meet us face-to-face in Saint John, Moncton, Fredericton, Charlottetown or Dartmouth - it's your choice.