Apart from the many legal consequences, filing for bankruptcy or defaulting on debt comes with an emotional and social burden that often overwhelms spouses in a relationship.
From a strictly legal perspective, your spouse is only responsible for your debts if it is a joint debt or if they have co-signed or guaranteed for your debt. If this is not the case their credit rating should not suffer.
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Spouses often share supplementary credit cards. Typically the primary card holder will request a supplementary card for their spouse. Since the spouse did not apply for the card, they are not legally responsible for it. However, if the spouse uses the supplementary card, it is not uncommon for the credit card company or a collection agency to then pursue the supplementary card holder if the primary card holder defaults on the payments. Prior to filing bankruptcy you should review this with your trustee, to determine if your credit cards have supplementary or joint co-borrowers.
Unlike with a supplementary credit card where only the primary borrower is legally responsible for the debt, with joint debts both parties are fully liable.
Financial issues can often lead to separation or even divorce. Blaming each other for all the accumulated debt lies at the bottom of such divorce cases and many times partners believe they can get rid of debt if they get divorced. Unfortunately, although matrimonial property is generally split between partners, the same does not apply when it comes to debt. In the province of Ontario, joint debt is not a 50/50 split as most people would imagine.
Divorce and Debts
What most couples aren’t aware of is that getting divorced will not split the debt in two or exonerate them of debt at all. You and your spouse maintain equal responsibility of ensuring that all debt is fully repaid even after divorce. Divorce is not a way to avoid the effects of bankruptcy.
In fact, even in the special situation where there is a legal separation agreement stating that each partner is to assume half of the joint debt, a creditor can still pursue the other spouse for all amounts outstanding if one of the partner defaults. Not even such agreements will release your spouse of your portion of the debt should you fail to repay it. Property can be owned jointly, but debt cannot. As a result, the other spouse is liable for their spouse’s debts should they default on their payments or file for bankruptcy.
Remember, you are getting divorced from your spouse, but not from the bank, so once you co-sign a joint debt you are responsible for the entire debt, unless the debt is paid or the bank agrees to release you from that debt.
Every situation is unique and things are not always simple. There are certain situations when the fact that you filed for bankruptcy can impact your spouse and your marriage.
If you have joint and other debts that you may be unable to pay, or if you have questions about how filing for bankruptcy will affect your spouse, your marriage and your family, contact us today for a free consultation. We can answer your questions.