How Will My Consumer Proposal / Bankruptcy Affect My Spouse?

In early 2009, I realized that my personal finances were going downhill. Although I considered myself a responsible person, and I had always paid my bills on time, it was now very difficult to make ends meet. I had no disposable income, and I skimped and tried to economize … but the recession had set in, and things were not getting better.  Instead, I spent a few months worrying. And one of my key worries was – if I had to file for Bankruptcy (or file a Consumer Proposal) – how would it affect my spouse?

Now that I’ve gone through the process of Consumer Proposal – successfully! – I can share what I learned.

Like most people, until I was faced with my own financial difficulties, I really had no idea what happened in a Bankruptcy – let alone how it affected families. Would “the men” come and repossess our household furniture? Would there be a notice in the paper? Would I lose my job? I could hardly shield my spouse from these events, should they happen. Fortunately, they do not!  Couples often assume that if one member files for Bankruptcy/Consumer Proposal, then they both have to. But this is certainly not the case.

Here’s the Nitty-Gritty

Your personal finances are just that – yours. Similarly, debts that are only in your name are yours. That means that your Bankruptcy or Consumer Proposal is also yours. A Bankruptcy or Consumer Proposal that you file will not affect your spouse’s credit rating, and their name will not appear on the public record.

Although your spouse is not responsible for your debts, he or she may still have some involvement in the process.

Your spouse may be affected by your Bankruptcy/Consumer Proposal if you have any joint credit cards. Usually, if your spouse has their own copy of the card, then at some point they signed to be jointly responsible for the debt – but you should check with your creditors. If this is the case, once you file for Bankruptcy or Consumer Proposal, your spouse will become entirely responsible for that debt.

In the case of Bankruptcy specifically (as opposed to Consumer Proposal), your spouse will be involved if you jointly own your home. This is because the spouse who files for Bankruptcy will owe the creditors their portion of the equity in the home (minus certain provincial exceptions). In some cases, the home must be sold to free up this equity. The non-filing spouse’s portion of the equity does not go to the creditors. This general principle applies to jointly owned vehicles and any other assets of significant value.

A third point of involvement for your spouse is that they will be asked to provide their income figures. Your Trustee will wish to know your entire household income, as well as the number of members of your household, in order to arrive at an appropriate schedule of payments. In the event that your spouse does not wish to disclose their income, the Trustee can work around it – but it’s much easier if your spouse can provide the numbers.

There are some instances in which two spouses can (at their option) file “jointly” for Bankruptcy or Consumer Proposal – usually when at least 90% of the debts are joint, or when each owes the same institutions very similar amounts. There can be cost savings in filing jointly in such situations. If this applies to you and your spouse, talk to a Trustee about the pros and cons of “joint filing.”

So far, we’ve covered financial effects on your spouse – but there’s also the aspect of how your financial situation affects your relationship, or affects your spouse emotionally. In my case, my spouse and I shared the worries about my financial situation, and discussed it frequently. While it was good to have someone at home to talk to, I wish I had consulted with a Trustee sooner and saved us months of discomfort.