Month: July 2005

Who’s Responsible to Pay Joint Credit Card Debt After Separation or Divorce

Credit card with wedding bands on it

Divorce is not easy, but it can be made more complex when credit cards with balances are involved, especially if one spouse is experiencing financial problems. I was recently asked this question:

“I took over a joint credit card after my wife and I separated and only I have charged items to the card since the separation. I have now cancelled that credit card. Will my ex-spouse will be responsible for the balance on the card if I go bankrupt?

Today I’d like to address the issues around divorce and credit card debt. There are two factors that will impact legal liability for credit card debt during a divorce or separation:

  1. what does joint and severally liable mean when it comes to joint credit cards, and
  2. can joint debts be removed by virtue of a separation or divorce agreement.

Liability for joint credit cards

Not all credit cards are joint credit cards. If you have a credit card issued in only your name, with no spousal card, then your spouse or ex-spouse cannot be held liable for any charges or balances.

Spousal cards however can create a liability for the secondary cardholder. Determining whether or not a supplementary card is responsible for debt depends on the terms and conditions of the credit card agreement itself.  If the credit card is a joint credit card, both spouses will be considered ‘jointly & severally’ liable for all debts. That means that both spouses will be liable for the full amount of the debt, including any interest that accrues after the card is cancelled. Cancelling a credit card after divorce does not cancel the outstanding debt to either party.

Using credit cards after a separation

The second issue surrounds how debt is treated in a separation or divorce. Unlike assets, credit card debt cannot be separate by a divorce agreement. Your spouse may still be liable even if you think they are not.

In our example above, the credit card remained in both names after the divorce and as a result the credit card company has the right to look to the ex-spouse to cover the balance if the current user of the card filed for bankruptcy. This includes not only debts that existed at the time of divorce, but any charges made on this card after the divorce.

Just like cancelling a card does not eliminate the liability of the joint card holders, neither does a divorce or separation agreement, formal or otherwise, limit the liability of any spouse from the lender’s perspective. You might agree you will be responsible for making all payments on the card, but without the credit card company’s express written consent, both joint cardholders will remain liable for past and future debts on the joint card.

A request can be made to the credit card company to remove the name of a joint cardholder or co-signor, but if there is a large unpaid balance, as in this case, it is unlikely they will agree. Sometimes the credit card company will do this if proof can be shown that only one person has charged items to the card since the card was first used and has the capacity to pay the balance. The original terms and conditions of the cardholder agreement can also come into play.

Cancel cards upon separation, not after

It is better to cancel all joint credit cards upon separation and open new credit cards in just single names. That way the balance on the old card can be paid jointly or covered in the separation negotiations and the new cards will be in the individual names and the responsibility of the charging party only. It’s important to remember as we noted above, that even if the divorce agreement requires one party to pay off the balance, the credit card company will still pursue the joint cardholder if they fail to make payments unless the credit card company specifically agreed to have the second cardholder’s name removed from the card.

Divorce, bankruptcy and credit card debt create a complicated trifecta.

Before you file a bankruptcy or proposal, contact us for a free consultation to ensure that the solution you choose will work for both you and your ex-spouse.

Is Bankruptcy the Right Thing to Do?

bankruptcy-the-right-thing

The real question that everyone wants us to answer when they come in for a consultation is “how do I know if bankruptcy is the right thing for me to do?” Deciding that you need to go bankrupt is not an easy choice, even if it’s the right one financially, we understand that.

Our job is not to sell you a bankruptcy. Our role as a Licensed Insolvency Trustee is to review your situation with you, conduct a debt assessment and present you with various options, so you can decide if bankruptcy is the right choice.  

Here’s how the decision making process works.

Attend a Debt Assessment

To begin, when we meet, we will always ask you these three basic questions:

  1. Who do you owe money to?
  2. What do you own (a car? RRSP? House?)
  3. How much do you earn each month and what do you spend it on? In other words, what does your budget look like?

During our meeting we will probably ask you many other questions as well, because we want to understand your situation before recommending a solution. Are you facing a wage garnishment or any other legal matter that would cause some urgency? What is your family situation — if you are married and have children this has an impact on the financial calculations we would make in determining how much you would have to pay in a bankruptcy or consumer proposal?

Reviewing All Your Bankruptcy Alternatives

As Licensed Insolvency Trustees, we are required by law when you come in for an assessment to make sure you understand the impact of all possible solutions, including any alternatives to bankruptcy.  There is no hard sell. We don’t push the idea of filing bankruptcy and no-one is asked to make a decision the same day. 

Our role is to talk about your situation and give you options. We will:

  1. Review your budget to see what you can afford.
  2. Explore your capacity to qualify for a debt consolidation loan.
  3. Cost out if your debts can be repaid through a debt management plan.
  4. Compare these options with the cost of a consumer proposal.
  5. Only if all of these options are not suitable for your unique situation will we recommend that you explore the bankruptcy option.

In case you still think that when you contact us you will have to file bankruptcy that first day, here are some interesting statistics about people we have helped:

  • 4 out of 5 people who contact us do not need to use our services. Many are guided to another solution to deal with their debts that is more appropriate.
  • 3 out of 4 people who do file take two weeks or longer to file. Part of this time is to ensure that all the necessary paperwork is complete but most is to provide them with time to be comfortable that the decision is the right one.

We want to address all your questions about bankruptcy. We will tell you how the bankruptcy process works and what may happen if you file bankruptcy. We’ll explain if filing bankruptcy will affect your home or mortgage and how most people can keep a car in a bankruptcy.

Bankruptcy Is a Fresh Start

The concept behind bankruptcy is that you need relief from your debts. For whatever reason (and there are many reasons people file bankruptcy) you have accumulated more debt than you can handle and you need to find a way out. 

If:

  • Your debt payments are taking up too much of your take home pay;
  • You are falling behind on your bill payments;
  • The phone is ringing with calls from collection agencies;
  • You are afraid to open your mail;
  • The stress from all of these things already has you feeling pretty bad about yourself and your situation;

…then bankruptcy may be the fresh start you need.

Call us and let’s get started. We can help you eliminate your debt.