What happens If My Ex-Spouse Goes Bankrupt?

When a relationship ends, it is not uncommon to have a formal separation agreement drawn up by a lawyer to spell out the responsibilities of each party. Assets (house, vehicles, pensions, furniture), debts (mortgage, loans, credit cards) are divided among the separating parties, and custodial arrangements are made for the care of the children.

If both parties have agreed to assume responsibility for certain debts, it does not absolve them, if one of them defaults on a debt, that was granted to both parties jointly.

Should one of the parties decide not to pay the debt, file a consumer proposal or file personal bankruptcy.  The creditor can pursue the other party for the full amount of the debt. From the creditor’s perspective, it doesn’t matter what the separation agreement says or what other arrangements were made between the separating parties.

When going through a separation or divorce, it is essential to deal directly with creditors and pay any joint debt. Especially credit cards that were obtained as a couple, to prevent further debt were both parties responsible.

For assets, when someone files for bankruptcy, all of their assets are transferred to the Trustee. For example, if both spouses jointly own a house and one goes bankrupt, the bankrupt spouse’s interest in the house transfers to the Trustee.

A written separation agreement might say the non-bankrupt spouse is supposed to have the bankrupt spouse’s interest in an asset; this may or may not be binding on the Trustee. The non-bankrupt spouse will have to deal with the Bankrupt spouse’s Trustee, to get the bankrupt’s spouse’s interest transferred.

Bankruptcy laws and family laws do not deal with assets and liabilities in the same way; there can be conflicts and unintended consequences when the two interact.

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.