Joint Debt and Co-Signing. Am I Responsible For My Spouse's Debt?

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Posted in Debt Help
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

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Joint Debts: Did you sign on the dotted line?

It's time for another FAQ podcast and today we talk about if and when you might be responsible for your spouse's debt and how one spouse filing bankruptcy might affect the other. To answer these questions I talk with Hoyes Michalos Licensed Insolvency Trustee Jason Quinney about joint debts and co-signed loans.  Jason explains what a joint debt is, what happens to a co-signer if a debt goes unpaid and clears up the misconception that joint debts settled in a bankruptcy or consumer proposal need to be filed individually.

What are joint debts?

Jason explains that joint debts are debts that you sign with another person.  For example,

...a lot of couples when they go to get loans, they have to get a co-signer; so they co-sign debts together.

He asserts that a co-signer is generally needed because an individual poses a lending risk and that by having a guarantor on the debt, they have ensured that two people are now responsible for that debt.  Examples of joint debts include lines of credit, mortgages and credit cards.  The latter has two different options to consider: a joint card and a supplementary card.

  • Joint Credit Card - Both individuals have signed for the card and are responsible for the whole amount of the debt (not just 50% of it).
  • Supplementary Credit Card - An additional credit card for your spouse, adult child or anyone that you wish to give the card to.  Legally, the supplemental card holder has no responsibility for the debt because they did not sign the paperwork. The amount owing is legally the primary cardholder's responsibility.

A common misunderstanding is that just because you are married and use the same credit card account or loan, you are liable for the debt.  However, if you did not sign for the debt, you are legally not responsible for it. Furthermore, if your spouse files bankruptcy or a consumer proposal it will not affect you if your name is not on the statement.

How will filing bankruptcy or a consumer proposal affect my co-signer?

If your debts are not joint (only your name is on the account), filing insolvency will not legally affect anyone else and your bankruptcy will not show up on your spouses credit report, just because you're married. Realistically, a bankruptcy could affect future loans (such as a mortgage) that you wish to sign jointly, because following a bankruptcy lenders will consider you a risk.  Jason explains that,

in real life it's going to affect [your future co-signer].  I mean the bankrupt isn't going to be a very good co-signer.  And so, if you go and apply for a loan or a line of credit or a mortgage, it may be difficult.

However, the important thing to remember is that you've dealt with your debt, and that prior to your bankruptcy you were probably considered a lending risk anyway.

Differently, if a debt is joint or co-signed (both you and another individual have signed on the account and both names are on the account statement) then creditors could continue to pursue that individual for the full amount, even though you have filed bankruptcy. Your bankruptcy will not affect your that person's credit report as long as they continue to make payments on the co-signed debt, because they are liable for the full amount.

What is a joint consumer proposal or bankruptcy?

A common misconception is that joint debts need to be handled individually by filing separate insolvencies. Contrary to this belief, it is possible to file a bankruptcy or consumer proposal together if you are carrying joint debts. This is one process that covers both individuals at a lower cost than filing separate insolvencies.

Jason explains that,

if you file two separate proposals, we would have to look at both.  The amount of debt would be 100% for both separate files.  So, we don't split the debts, you can't split the debts in half.

He goes on to say that filing a joint consumer proposal would be around half of that cost because you're only dealing with the debt once.

If you're unsure whether your debts are joint or you're wondering how a joint bankruptcy or consumer proposal process works, contact a licensed Trustee in Bankruptcy to review your situation and discuss all of your options.

For more information about joint debts, co-signers and how to deal with joint debts during a separation or divorce, listen to our podcast or read the full transcript.

FULL TRANSCRIPT show #39 with Jason Quinney

joint-debt-transcript

Doug Hoyes: Welcome to Debt Free in 30 where every week we take 30 minutes and talk to industry experts about debt, money and personal finance. I'm Doug Hoyes. It's the end of the month so that means it's time for another Frequently Asked Questions show here on Debt Free in 30.

Every day we gets lots of phone calls to our 310PLAN help line and dozens of people every week email the Hoyes Michalos team with questions. I keep track of those questions and we answer the most common questions on our frequently asked questions shows.

We get a lot of questions about what will happen to my spouse if I have debts and what happens to co-signers? So, today we're going to answer all of your frequently asked questions about spouses, co-signers, supplementary card holders and joint debts. Before we get to those questions let me tell you some facts.

If you're a regular listener to this show you'll know that every two years we do a detailed study of everyone who files a bankruptcy or consumer proposal with Hoyes Michalos. We call it our Joe Debtor study and we talked about it back on show #36 which aired on May the 9th. You can go to Joedebtor.ca to read all about it. Here's some interesting facts from that study. Of all the people who go bankrupt or file a consumer proposal, 40% are married or common law and 28% are separated or divorced. That means that more than two thirds of everyone we help either has a spouse or did have a spouse and it's very likely that they had debts together. What do I mean by debts together? To answer that question and lots of other questions about whether or not your spouse is responsible for your debts, I'm joined today by Jason Quinney, a trustee who works in the Hoyes Michalos offices in Barrie, Vaughn and our Jane and Finch office in Toronto. Jason, welcome the show, how are you doing today?

Jason Quinney: Good, Doug.

Doug Hoyes: So, let's start with that question, then. What does it mean to have debts together? So, explain that to me.

Jason Quinney: Well, having debts together, I mean a lot of couples when they go get loans they have to get a co-signer, so they co-sign debts together.

Doug Hoyes: So, the key point there is, we have both signed for the debt.

Jason Quinney: Yes.

Doug Hoyes: So give me some examples of where people would both be signing for the same debt.

Jason Quinney: Well, they could go into the bank for a line of credit. Sometimes you need a co-signer so they would both sign together for that line of credit.

Doug Hoyes: Why is the bank asking for a co-signer? What's the typical reason that two people would be signing?

Jason Quinney: Usually it's so they could have two people to collect from.

Doug Hoyes: Okay, so the bank wants their butt covered. It's a lot easier to get money from one person then, or from two people as opposed to one.

Jason Quinney: Yep.

Doug Hoyes: So, a line of credit would be an obvious one. What types of debts are often joint where two people are signing for them?

Jason Quinney: Mortgages.

Doug Hoyes: That would be anther common one.

Jason Quinney: Yeah.

Doug Hoyes: So, what about credit cards. So, there are two different ways a credit card can have two people associated with it. You can have a joint credit card or you can have a supplementary credit card. So, let's start with the legal concept, what's the difference between, you know, legally, between a joint credit card and a supplementary credit card?

Jason Quinney: Well, a joint credit card would be a co-signed. So, both of you signed for it, where a supplementary credit card is when you get a credit card and then they ask you if you want another credit card for your spouse.

Doug Hoyes: And that's a pretty common thing, you fill out the form and you've already qualified so-

Jason Quinney: And they always ask you if you want a supplementary one.

Doug Hoyes: You tick the box, boom there it is. So, your spouse, if we want to use that example, and the supplementary card could be for anyone, it could be for your adult child, it could be for your mother I guess. But let's take the simple scenario of two spouses. So, I tick the box and say yep I'd like a supplementary card for my wife. Now, she hasn’t signed for it, so is she legally responsible if that card doesn’t get paid?

Jason Quinney: Legally, no.

Doug Hoyes: Because she didn’t sign for it.

Jason Quinney: Because she didn’t sign for it.

Doug Hoyes: Okay. So, let's talk about real life then, tell me some stories about what happens in real life with supplementary card holders.

Jason Quinney: Well, in real life they will go after the second person.

Doug Hoyes: They will go after them. And so what happens? The first person has to go bankrupt, can't pay, then they start getting the phone calls, the letters whatever.

Jason Quinney: To go after the second person.

Doug Hoyes: So, how do I know, if I'm listening to this today and I'm going gee, oh yeah we're behind on the credit card bill, I wonder if I'm a joint card holder or a supplementary card holder. How can I figure that out?

Jason Quinney: Well, the easiest way to figure that out would be to look at your credit card statement.

Doug Hoyes: So, if both names are on the credit card statement.

Jason Quinney: Then likely -

Doug Hoyes: Likely we're both liable for it.

Jason Quinney: Exactly.

Doug Hoyes: So, okay if we both signed for the debt, we're both liable, and so does that mean I'm 50% liable, my co-signer is 50% liable?

Jason Quinney: No, a lot of people think that though. A lot of people think that they would be just responsible for half of the debt. But no, they would actually be responsible for the whole amount.

Doug Hoyes: So, it's not 50/50, it's 100%/100%.

Jason Quinney: Yep.

Doug Hoyes: So, if my co-signer, my joint card holder doesn’t pay, the bank is coming after me for the whole shot.

Jason Quinney: Correct.

Doug Hoyes: Okay, so that's a pretty important distinction, then. So, just to review then, a joint debt is signed by both people.

Jason Quinney: Yes.

Doug Hoyes: So, if you remember signing the loan application form or the credit card application form, you're joint.

Jason Quinney: Yes.

Doug Hoyes: It's pretty much that simple. If you don’t remember signing for it, legally, well, maybe you forgot, but legally if you didn’t sign for it you may not legally be responsible but practically speaking okay, well, you've used the card it's not uncommon that they're coming after you for it.

Jason Quinney: Yep.

Doug Hoyes: Okay. So, in general, is my spouse - somebody I'm married to - automatically responsible for my debts because we're married?

Jason Quinney: No.

Doug Hoyes: Now I get people coming into my office all the time saying well, the credit card company phoned me and my spouse isn't paying, so they said I'm married I've got to pay, you're saying that's not the case.

Jason Quinney: Correct

Doug Hoyes: Why not?

Jason Quinney: Well, because you haven't co-signed for it, you're not joint on the debt; they can only go after the one person.

Doug Hoyes: So, it all comes down to who signed for it.

Jason Quinney: Exactly.

Doug Hoyes: It's as simple as that. So, if my spouse didn’t sign for it, they're not liable.

Jason Quinney: Yes.

Doug Hoyes: Simple as that, okay. So, let's take this a step further then, let's say that I'm in deep financial trouble, I decide to go bankrupt, my spouse does not decide to go bankrupt.

Jason Quinney: Okay.

Doug Hoyes: How does my bankruptcy legally affect my spouse?

Jason Quinney: Legally it's not going to affect her at all, as long as the debts not joint.

Doug Hoyes: If the debts were joint, then -

Jason Quinney: Then the creditors will go after her, will go after the spouse.

Doug Hoyes: For the full amount.

Jason Quinney: For the full amount.

Doug Hoyes: So, if my spouse, if I'm considering bankruptcy or I guess a consumer proposal would be exactly the same and I'm trying to figure out the impact on my spouse, did they co-sign? We keep coming back to that same point. Because it's like you said earlier, it's a very common misconception oh well, we're married I guess I'm on the hook for it. You know all the money goes into the same bank account, we pay all the debts together, legally that's not the case. So, okay, legally if I go bankrupt it doesn't impact my spouse. What about in real life?

Jason Quinney: In real life it's going to affect. I mean the bankrupt isn't going to be a very good co-signer. And so if you go and apply for a loan or a line of credit or a mortgage, it may be difficult.

Doug Hoyes: So, my bankruptcy finishes, we go off to the bank to buy a house, the bank's going to say, oh you were bankrupt last year, much more difficult to get a mortgage, obviously.

Jason Quinney: Exactly, generally they're going to want you to wait two years after your bankruptcy's finished.

Doug Hoyes: In order to be able to get a decent rate.

Jason Quinney: Yes.

Doug Hoyes: So, my spouse is disadvantaged in a bankruptcy because I'm a lousy co-signer in the future.

Jason Quinney: Yes.

Doug Hoyes: I guess the flip side of that though is, I got rid of my debt.

Jason Quinney: Yep.

Doug Hoyes: So, there's pluses and minuses, I guess you got to look at the big picture. Explain to me in a bankruptcy, and again we're trying to figure out how a bankruptcy impacts on a spouse, how does surplus income factor into this?

Jason Quinney: Well, surplus income in a bankruptcy situation you have to look at both of the spouse's income. Okay, so in a bankruptcy situation the spouse could be affected.

Doug Hoyes: Okay, so when you go bankrupt, so again let's take the case of just the husband is going bankrupt, the wife isn't.

Jason Quinney: Correct.

Doug Hoyes: Every month you have to prove what your family income is.

Jason Quinney: Yes.

Doug Hoyes: How does that work in practice, how do you do that?

Jason Quinney: Well, we would get the bankrupt to fill out a form, an income and expense statement and they would send that in with proof of their income.

Doug Hoyes: So, their pay stubs.

Jason Quinney: Pay stubs or a bank statement.

Doug Hoyes: And so it would be the pay stubs for both the husband and the wife, even though the wife isn’t bankrupt.

Jason Quinney: Yes.

Doug Hoyes: And the more your family makes, the more you have to pay in a bankruptcy.

Jason Quinney: Exactly.

Doug Hoyes: And we won't go through all the real specific numbers now but in real general terms a family of two, so let's say it's just a husband and a wife, they're allowed to make around -

Jason Quinney: $2,562 I think it is now.

Doug Hoyes: So, and that's the number for 2015. So, if you're listening to this in the future, the number might be slightly higher. But they're allowed to make let's say around $2,500, if their income is a lot higher than that because the non-bankrupt spouse has income, that potentially means the bankrupt spouse has to pay a little bit more.

Jason Quinney: Yes.

Doug Hoyes: But they don’t have to pay as much as if they were both bankrupt.

Jason Quinney: No.

Doug Hoyes: So, we factor out the non- bankrupt spouses -

Jason Quinney: Exactly, you use the bankrupt's percentage of the income.

Doug Hoyes: So, if the penalty calculated, let's say the family is $2,000 over the limit, if the husband earns all the income and the wife earns nothing, then the husband is paying the penalty on the $2,000.

Jason Quinney: Exactly, yeah.

Doug Hoyes: And the penalty is -

Jason Quinney: 50%.

Doug Hoyes: 50% so a $1,000. However, if both spouses have an equal income, then they're $2,000 over the limit, then how much is the bankrupt husband going to have to pay?

Jason Quinney: Well, we would take out the 50% of the spouse's income. And then they would have to pay 50% of that. So $500.

Doug Hoyes: So, $500.

Jason Quinney: Yep.

Doug Hoyes: Okay. So, the spouse's income does matter in a bankruptcy but not as much as the income of the bankrupt.

Jason Quinney: Exactly.

Doug Hoyes: Okay, so I guess the answer to the question then, we're going to take a quick break here and come back, but in a bankruptcy, the non-bankrupt spouse isn’t directly affected. But they are indirectly affected because the bankrupt might have to pay more, might have to pay less, it all depends. And they won't be a great co-signer in the future.

Great, thanks Jason. We're going to take a quick break and we're going to come back and answer more questions about joint debts and spouses and how that all works when you're in financial difficulty. You're listening to Debt Free in 30.

Announcer:            You're listening to Debt Free in 30. Here's your host Doug Hoyes.

Doug Hoyes: We're back on Debt Free in 30. I'm Doug Hoyes and I'm joined today by Jason Quinney who is a Hoyes Michalos trustee. He works in our offices in Barrie, Vaughn and at our Jane and Finch office in the north end of Toronto. Today we're talking about joint debts, spouses, what happens, who's liable for what. And what we talked about in the first segment, Jason, was what really matters is who signed for it.

Jason Quinney: Correct.

Doug Hoyes: So, if both people signed for it, both people are liable for it.

Jason Quinney: Yes.

Doug Hoyes: And it doesn’t matter if you're married or not when it comes to deciding who's liable for something. It's all who signed for it, that's what matters. So, we talked about how a bankruptcy impacts a spouse. If I go bankrupt and my spouse doesn't. And Jason you said legally, it has no impact on them but it could have repercussions down the road if they're trying to jointly co-sign for a mortgage or something. So, does my bankruptcy appear on my spouse's credit report?

Jason Quinney: No.

Doug Hoyes: So, there's no notation whatsoever.

Jason Quinney: No.

Doug Hoyes: And the only impact then on my spouse's credit would be in the example of a joint debt again.

Jason Quinney: Correct.

Doug Hoyes: So, if we're both signed on the debt, I don’t pay because I went bankrupt, my spouse now is on the hook.

Jason Quinney: Yes.

Doug Hoyes: So, what happens if I go bankrupt and we've got a $5,000 credit card together? And my spouse says well, okay I'm not going to go bankrupt for $5,000. If they continue to pay it will that have any negative impact on their credit report?

Jason Quinney: No, as long as they continue to pay it.

Doug Hoyes: That's the key.

Jason Quinney: That's the key, yep.

Doug Hoyes: So as long as - so, even though I'm bankrupt, that non- bankrupt spouse can keep paying. It's not a big deal.

Jason Quinney: Yes.

Doug Hoyes: So, what about then with - let's make sure we've clarified that then - so, let's say my parents co-signed a loan I got. I go bankrupt, what happens to my parents?

Jason Quinney: They will go after your parents for the loan.

Doug Hoyes: And so what advice would you give my parents then? What are their choices?

Jason Quinney: Their choices would be to pay it.

Doug Hoyes: And if they're not able to pay it, then they -

Jason Quinney: Well, it depends. I mean the parents they could be elderly so they could be creditor proof. So, they may not have to pay it, if they don’t have any assets.

Doug Hoyes: So, just explain what you mean by creditor proof? What are you talking about there?

Jason Quinney: If somebody's not working. So, if somebody's elderly and they're on a pension, they don’t have any assets, they could be considered creditor proof or judgment proof where they can't get - a creditors not going to be able to sue them and get a judgment against them.

Doug Hoyes: So, and the key is being able to get something from them, I guess.

Jason Quinney: Yes.

Doug Hoyes: So, you can sue anybody for anything.

Jason Quinney: Yep.

Doug Hoyes: The sky is blue I'm going to sue you for it.

Jason Quinney: Yep. Typically judges aren't going to grant a garnishment against somebody's pension.

Doug Hoyes: Because in Ontario, and the rules maybe slightly different in other parts of the country, but in Ontario, the Ontario Wages Act is pretty clear. You can only garnishee -

Jason Quinney: Income.

Doug Hoyes: Yeah, wages.

Jason Quinney: Wages, yep.

Doug Hoyes: So, if you have a pension then that can't be garnisheed. The only exception I've seen would be if you haven't paid your taxes, Revenue Canada has the ability to withhold some or all of your CPP payments.

Jason Quinney: Yes.

Doug Hoyes: Cause they've already got their finger in that pot. But, if you've got a normal company pension, you haven't paid your credit card bill, they aren't going to be able to, under normal circumstances, get a judgment, they can get a judgment but they won't be able to garnishee that.

Jason Quinney: Yeah.

Doug Hoyes: So, is there any way for the bank to collect from my elderly parents who co-signed this loan before I went bankrupt? What other advice would you give them? In terms of, they’re still banking at the same bank, is that potentially a problem?

Jason Quinney: That could be a problem. If they're still banking at the same bank where the loan is co-signed with, the bank can go into that bank account and take any money that's in there and put it towards that loan.

Doug Hoyes: Without having to go to court.

Jason Quinney: Without having to go to court.

Doug Hoyes: Because -

Jason Quinney: Because when you open up a bank account it says in the small print that if you owe them money they can technically take the money.

Doug Hoyes: And I guess even if legally they can't, well it's their computer system, it's not too hard. And so have you actually seen that happen?

Jason Quinney: Yes.

Doug Hoyes: So, if someone is listening to us today saying okay I've got a bunch of debts, I know that one of my debts is co-signed by my parents, what kind of - what's the thought process then? What kind of advice do you give someone like that?

Jason Quinney: I would advise them to open up a new bank account with a different bank, with a different institution.

Doug Hoyes: Got you. So, and that way at least they don’t have to worry about something coming out of their bank account that they didn’t know.

Jason Quinney: Exactly.

Doug Hoyes: And I guess when I'm talking to someone like that I say well if your number one worry is I want to make sure that my parents are protected, then what you could do if it's a relatively small debt, compared to all your other debts, is you could deal with your parent's debts first.

So, okay fine I've got this $5,000 joint credit card that they helped me get 10 years ago and their name's still on it, so before I go bankrupt, I'm going to help my parents get that paid down or even paid off which of course means all my other debts are going to be really old. But at least then, they are protected. If they've co-signed for my $50,000 student line of credit, well, I'm not going to be able to pay that off, and I guess in that case the best advice for the parents, if they actually do have some income, they do have some assets, they should probably go to the bank, get it switched over entirely into their name, set up a new loan, maybe they can get a better interest rate and deal with it that way. Okay, can I go bankrupt on my own or is it a requirement that my spouse has to go bankrupt when I go bankrupt?

Jason Quinney: No, you can go bankrupt on your own.

Doug Hoyes: And how would I decide whether I go bankrupt on my own or whether I go bankrupt with my spouse?

Jason Quinney: Well, the main thing is you got to look at the debt, so are they joint debts? Is your spouse co-signed on them? Does she have supplementary cards on them? Or you could have common creditors. Do you both have the same creditors?

Doug Hoyes: And so, if we're both on the same debt, that would be more likely that we would both then have to come up with some form of solution.

Jason Quinney: Yes.

Doug Hoyes: And would it be two separate bankruptcies that we'd be doing or would be doing a joint bankruptcy?

Jason Quinney: No, you could do a joint bankruptcy, or a joint consumer proposal.

Doug Hoyes: And that means it's one process covering both of us.

Jason Quinney: Yes and it would likely be cheaper.

Doug Hoyes: So, when you say cheaper, how would it be cheaper? Let's take an example then. So, I've got - well, let's take the example of a bankruptcy. I've got some debts, my spouse has some debts, some of them are together, some of them are not. If we both went bankrupt separately as opposed to both going with a joint bankruptcy, the cost isn’t going to be hugely different is it?

Jason Quinney: Not hugely different, but there is a difference because I would have to do two separate files. So, the two separate files, there would be cost on those two separate files.

Doug Hoyes: Because typically as a trustee, you're going to say there's a minimum cost, a couple of hundred bucks a month or whatever it is, so if you're doing two files, potentially that minimum cost could double.

Jason Quinney: It's going to be that cost times two. Exactly.

Doug Hoyes: The surplus income that we talked about earlier wouldn’t make any difference if it's two separate bankruptcies or one bankruptcy.

Jason Quinney: No, you're going to end up paying the same amount.

Doug Hoyes: You're paying the same amount. So, I guess if you have joint debts or if you have some debts together or you both have debts, then you want to sit down with a trustee and crunch the numbers.

Jason Quinney: Correct.

Doug Hoyes: Okay, should we do the bankruptcy together or should we not? I guess one of the problems with doing a joint bankruptcy is, you only get discharged if both of you complete all of your duties.

Jason Quinney: Yes.

Doug Hoyes: And so what would be a common example of a duty that might not get completed if we did a joint bankruptcy. So, I do what I was supposed to do, my joint person doesn’t, what would be an example of something they wouldn’t do? What have you seen in your experience?

Jason Quinney: Sometimes people get divorced during the process. So, one spouse could take off. Maybe one spouse is sending income and expense statements and the other spouse isn't. Cause if they're separated then they got to send in two.

Doug Hoyes: Got you.

Jason Quinney: Other things maybe tax information, maybe one spouse provides their tax information and the other spouse doesn't.

Doug Hoyes: Or attending the counselling.

Jason Quinney: Attending the counselling, exactly.

Doug Hoyes: So, if there's any risk that your spouse isn't going to be able to fulfill all their duties, that might be an option to do two separate bankruptcies as opposed to one.

Great, well I appreciate that Jason. We're going to take a break and come back to wrap it up. Thanks for being here today to talk about joint debts. You're listening to Debt Free in 30. We'll be right back.

Let's Get Started Segment

Doug Hoyes:   It's time for the Let's Get Started segment here on Debt Free in 30. I'm Doug Hoyes and today I'm joined by Jason Quinney, who's a Bankruptcy Trustee and Consumer Proposal Administrator. We've been talking today about joint debts, co-signers.

So, Jason I want to talk about joint proposals. So we already talked about a joint bankruptcy and you listed a number of potential areas where you can get into trouble with a joint bankruptcy if one of the parties doesn’t fulfill all their duties. They don’t get their tax information in, they don’t prove their income every month, they don’t attend counselling sessions; I assume that most of those same issues could happen in a joint proposal.

Jason Quinney: Yep.

Doug Hoyes: Let's start with the basics then. What is a joint proposal, what does that mean?

Jason Quinney: A joint proposal is when two people file a consumer proposal together.

Doug Hoyes: Okay, so instead of us filing two separate ones, we do one together. Why would we do a joint proposal?

Jason Quinney: If you have common creditors or joint debts, joint creditors.

Doug Hoyes: So, then it kind of makes sense.

Jason Quinney: Yes.

Doug Hoyes: Now is it going to be more expensive or less expensive if I file a joint proposal?

Jason Quinney: It would be less expensive.

Doug Hoyes: So, let's take an example, then. Not that I don’t believe you but let's actually crunch the numbers, then. So, we've got, between us we've each got let's say $30,000 worth of debt, and most of that debt is joint. We both co-signed a $25,000 line of credit. So, in order to file a joint proposal you said we have to have commonality of debt. So, obviously if we both have a $25,000 line of credit, that's - our debts are substantially similar. So, if I file two separate proposals, walk me through the math then.

Jason Quinney: Okay. So, if you file two separate proposals we would have to look at both. The amount of debt would be 100% for both separate files. So, we don’t split the debts, you can't split the debts in half.

Doug Hoyes: So, I'm going to do a proposal, my debts are $30,000.

Jason Quinney: Yep.

Doug Hoyes: And let's assume just to keep it simple here I don’t have a whole lot of assets, I don’t have a whole lot of surplus income. What kind of numbers am I going to have to offer to get the creditors to accept that proposal?

Jason Quinney: Probably around 10 to 12 thousand.

Doug Hoyes: So, something around a third, that's kind of the typical number that most of the big banks are looking for, sometimes it can be less, sometimes it can be more. So, I go and I file a proposal, I got to pay $10,000, $12,000, whatever, my spouse is going to have to do the same.

Jason Quinney: Exactly.

Doug Hoyes: So, the total cost for us to do it individually -

Jason Quinney: It's going to cost you $20,000.

Doug Hoyes: Whereas if we did one proposal together.

Jason Quinney: It would be $10,000.

Doug Hoyes: Okay, so that's kind of a no brainer in that case.

Jason Quinney: Exactly.

Doug Hoyes: Now why can't the banks figure it out when we both file a proposal separately on the same day that it's both the same debt?

Jason Quinney: I don’t know.

Doug Hoyes: That's just the way it is.

Jason Quinney: Yep.

Doug Hoyes: Okay, so it doesn’t make sense, but that's just the way it is.

Jason Quinney: That's just the way it is, yep.

Doug Hoyes: It all comes back to something we said in the first segment which is you are 100% liable for 100% of the debt. They don't get split in half. So, if we got separated, but we still had all this debt together, could we still file a joint proposal?

Jason Quinney: Legally yes, you could if you're separated. I wouldn’t want to do that.

Doug Hoyes: Why not?

Jason Quinney: Because there's issues, because I mean a lot of the time there could be bantering between the two, the separated couple.

Doug Hoyes: I mean by definition we're separated, so I guess we're not getting along.

Jason Quinney: Yep.

Doug Hoyes: And so you're afraid that if it's going to be a five year proposal that the chances of us getting along for five years are kind of slim.

Jason Quinney: Exactly, yes.

Doug Hoyes: So, if I said okay we're separated but I'm going to help my ex out by making all the payments in the proposal, legally that's fine.

Jason Quinney: Sure, yeah.

Doug Hoyes: Practically though you worry about that.

Jason Quinney: Yes.

Doug Hoyes: Because if I don’t make the payments -

Jason Quinney: Then the other person's - the proposal's going to be annulled.

Doug Hoyes: Their pouched. And when you say a proposal's annulled, what does that mean?

Jason Quinney: Well, if you fall three months in arrears, so if you fall three months behind in payments in a consumer proposal, then the proposal's automatically annulled. So, it's automatically cancelled.

Doug Hoyes: Okay, so you can be a little bit behind but if you get too far behind you're toast.

Jason Quinney: Exactly.

Doug Hoyes: Have you ever done a consumer proposal for people who are separated?

Jason Quinney: No, but I've done consumer proposals where people get separated.

Doug Hoyes: In the middle.

Jason Quinney: In the middle.

Doug Hoyes: And some of them work, some of them don't.

Jason Quinney: Yes. Most of them tend not to work.

Doug Hoyes: Yeah, it's a bit of a risky situation. And part of it's just simple math, I mean when we were together we were both earning X number of dollars a month, we had one mortgage payment, one rent payment, one phone bill, one cable bill. Once we get separated, our incomes don’t go up. But now we've each got our own rent, our own living expenses, so it's a lot more difficult than to be making payments. Exactly, that becomes the practical consideration

Jason Quinney: Can they still afford to make the payments?

Doug Hoyes: Yeah and if they can't - so, at that point what options do you have?

Jason Quinney: Well, you could go bankrupt, you could file a bankruptcy.

Doug Hoyes: And can you just split the proposal in half and I'll pay half and you pay half?

Jason Quinney: No.

Doug Hoyes: So, that's not really an option. I mean I guess you could -

Jason Quinney: You could, I mean half the person could be making half the payment, the other half could be making the other half the payment.

Doug Hoyes: So, the proposal is still exactly the same from the creditor's point of view, it's just that you're paying for some of it and I'm paying for some of it.

Jason Quinney: Yep.

Doug Hoyes: But practically speaking a lot more difficult to do.

Jason Quinney: Yeah.

Doug Hoyes: Well, great I appreciate that Jason. Joint proposals they work in some cases, they're not the perfect option in other cases, that's a good way to end it. You're listening to the

Doug Hoyes: Welcome back, it's time for the 30 second recap of what we discussed today. On today's show Jason Quinney explained that just because you're married does not automatically make your spouse liable for your debts. And we discussed the difference between joint and supplementary accounts and what happens to co-signers in a bankruptcy. That's the 30 second recap of what we discussed today.

I know we emphasised it many times during the show, but it's a very common misunderstanding so I'll say it again. You are only liable for debts you signed for. Just because you're married does not automatically make you liable for your spouse's debts. However, if your spouse has debts it may indirectly impact you, so it's important to understand all of the implications of joint debt and debt owed by you and your spouse. So that you can come up with the debt management options.

That's our show for today. Full show notes are available on our website including details on joint and co-signed debt. So, please go to our website at hoyes.com, that's h-o-y-e-s-dot-com for more information.