Effect of Joint Debts In Bankruptcy

What happens when you declare personal bankruptcy? Do creditors pursue your spouse? The answer depends on who owes the debt.

Single Debts

As long as your debts belong solely to you, then claiming bankruptcy should have no impact on your spouse or their credit rating, but sometimes the answer is not quite that simple.

Joint Debts

If your spouse has not co-signed or guaranteed any of your debts then those debts belong solely to you.

However, if they have guaranteed or co-signed any of your debts, those debts are no longer just yours. Now your spouse will become fully liable if you file for bankruptcy.

What If My Spouse has a Supplementary Credit Card?

Supplementary credit cards are very common among spouses.

A supplementary credit card has the same account number as the primary credit card. So, if your spouse has used a supplementary credit card with their name on it, they may be considered jointly responsible for all debts accumulated under that credit card account. One way to determine if your spouse is liable is to have your spouse call the credit card company and ask. If the credit card company says “we are not authorized to speak to you because this isn’t your credit card” then you can be reasonably certain that your spouse is not liable for the card. If the credit card company will speak to your spouse, it is likely that they are liable for the full balance owing on the card if you declare bankruptcy.

What Happens to Debt in a Divorce?

In the province of Ontario when you get divorced, all matrimonial property is split between the husband and wife. However, with joint debts if you get divorced the debt is not split and you both remain equally responsible to ensure all debts are fully repaid.

In fact, even if you have a legal separation agreement which states that each person is to assume half of any joint debts this will not release you from your spouse’s portion.

In simple terms, if you are joint with your ex-spouse on a debt, it’s not a 50/50 split; it’s a 100%/100% split, because you are both fully liable for the debt. If one spouse declares bankruptcy, the other spouse is fully liable for the joint debt.

For more information please contact one of our Ontario bankruptcy offices today. We offer a free, no obligation consultation. One of our trustees will personally review your financial situation and explain all of the different Ontario debt management options.

We can help you to regain control of your financial situation, simply contact us today.

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