#1 Reason People File for Bankruptcy is Related to Marital Issues
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Many Canadians have taken on more household debt than they can reasonably afford. But simply being over-extended does not lead individuals to seek the assistance of a Licensed Insolvency Trustee. Usually the realization that help is needed follows a life-changing event that results in the debt becoming too much of a challenge.
This type of event can include loss of income due to job loss, increased expenses due to medical issues or major house repairs and it can also be due to an increase or change to your family circumstances.
One of the main reasons people end up in a trustee’s office to discuss their debt issues is because they are facing separation or divorce.
Often times the household debt seems manageable when married as there is one household with two incomes to support the living expenses. When separation/divorce happens, the landscape changes and you are then looking at two households to support which results in a higher cost of living. Add in the household debt payments on top of these increased living expenses and the debt that seemed manageable is now insurmountable.
The other issue that comes into play is this idea of blame. When facing a relationship breakdown it is human nature to assign blame for all of the problems of the failed relationship. Dealing with maritial debt is no different. Often there is one party that strongly feels they are not responsible for building up the credit and shouldn’t be responsible for paying it off. Sometimes the parties take the more reasonable approach that it should be split 50/50 and don’t understand why this should present an issue with the creditors.
Dealing with debt in a relationship breakdown is as important as dealing with matrimonial assets and custody arrangements.
It is advisable to seek professional advice before taking any action to make sure that your debt is going to be managed in the best way for both parties. A professional will help you look at who is responsible for the debt from a legal standpoint and in the eyes of the creditors. They will help determine the affordability of the debt in light of the new cost of living and can provide you with your options.
For example, let’s say a couple has two creditors that they are both responsible for paying in equal amounts. The decision is that each of them will take on one of the debts as this is equivalent to paying the debt equally. A few years later if one of the parties defaults on the debt they were previously paying that creditor will then go after the co-signor for payment. In other words, even if your separation agreement states that you will not be responsible for maintaining a particular debt this does not protect you from collections if your spouse does not fulfill the terms of the agreement.
To protect yourself from this type of debt popping up in your future it is important that you deal with your obligations and responsibilities directly with the creditor.
For example, if your spouse has agreed to take on a particular debt make sure the creditor rewrites the loan in your spouse’s name. This will ensure that you are no longer responsible. If your spouse will not qualify for a new loan in just his or her name then you need to understand that if the co-borrower defaults you will still be responsible for the balance owing.
If you both have the ability to pay something towards your debt but can see that you can no longer afford the total debt with the current payment and interest requirements then you may wish to consider a consumer proposal. This option allows you to make one monthly payment that you can afford while paying back a portion of the overall debt interest free. This is also a good option if you have debts in your name as well as in the name of your ex-spouse. By filing a consumer proposal you are protecting yourself from any future liability on your joint debts while still making sure the payment is affordable.
Dealing with all of the issues that come along with separation and divorce can be emotionally exhausting. When you close the chapter on your relationship you want to make sure there are no surprises. Instead, make sure you can make a plan for dealing with the debt issues that were part of your relationship so that you can truly get a fresh start.