One of the most common questions we are asked is: "Will my bankruptcy affect my spouse?" We get this question from people who have been married for many years, and from people who are about to be married. We hear the same question from people who live common-law, and even from same sex couples.
In most cases, the answer to the question is very simple: Your debts are your debts; only you are responsible for them. If you go bankrupt, your debts are discharged. Your husband or wife or common-law spouse is NOT responsible for your debts; therefore, filing bankruptcy will have no effects on your spouse.
Many people have the mistaken belief that because you are married, your spouse is automatically responsible for your debts. This belief comes from the fact that many collection agents, when they are collecting debts, tell you that if you don't pay they will go after your spouse for your money. This is a collection agency scare tactic; they can only go after you for your debts.
The only time your bankruptcy can have effects on your spouse, when a bill collector can pursue your spouse for your debt, is if your spouse has co-signed or guaranteed your debt. For example, if you took out a loan and had your spouse co-sign for it, if you don't pay, the bank can pursue your spouse for the money. They can go after your spouse because, once you co-sign a debt, it becomes your debt. The bankruptcy will affect your spouse because he/she co-signed for the loan and so, your debt is also your spouse's debt.
It is very common to get your spouse a supplementary credit card. Even though your spouse may not have signed the credit card application form, if they have a card with their name on it, and if they have used the card, they are responsible for the entire debt and your bankruptcy will affect the spouse too.
If you have no joint debts, one spouse's bankruptcy will have no effects on the other spouse's credit rating. However, the bankrupt spouse may not qualify as a co-signer in the future due to the bankruptcy, so one spouse's bankruptcy may have indirect effects on the other spouse.
In Ontario, if you are divorced, matrimonial property is split between the husband and wife. (If you owned a house together worth $100,000 and got divorced, and that was the couple's only asset, if the house was sold, each person would receive $50,000). However, if you have debts together and you get divorced in Ontario, your are each responsible for the entire debt - so, yes, in that case one spouse's bankruptcy will affect the other spouse.
Even if your separation agreement states that you will each assume half of the debt, if the other party does not pay their half, the creditor can pursue the other spouse for the full amount of the debt.
You do not each owe half of the debt; it's not a 50% - 50% split; it's a 100% - 100% split if one of the partners doesn't pay.
If you are considering bankruptcy and are wondering how and will your bankruptcy affect your spouse, we recommend that you call one of our Ontario bankruptcy offices or contact a bankruptcy trustee by email immediately for answers to your bankruptcy questions. The longer you wait to deal with these issues, the more difficult dealing with debt becomes.