FAQ

Bankruptcy - Effects on Others Questions

Is My Bankruptcy/Proposal Going to Affect My Spouse/Partner?

A party can only be held responsible for repayment of your debt if they signed the original contract, loan agreement or credit card application. If your spouse or partner never signed the original contract and never requested a credit card, they cannot be held responsible for the other partner’s debt. In Canada, marriage alone does not make you responsible for your spouse's debts.

With respect to credit cards, there are two ways in which the second party can be held responsible for repayment of the debt. One is where the individual actually requests a secondary card and signs an agreement saying they accept full responsibility for current and future debt. The other is where the credit card company sends a card out in the second individual's name with the primary cardholder's number and the second individual actually signs and uses the card. Use of the card could make the secondary person responsible for any past and or future debt.

Should you wish to remove your spouse or partner from your credit card or loan document, you must get confirmation in writing from the financial institution. If you do not obtain written confirmation, there is no guarantee the institution has removed the second party from their records.

Allocation of responsibility for debt between spouses in a separation or divorce agreement does not legally bind a financial institution or creditor. Unless you obtain concurrence to the division and re-assigning of responsibility of debt from the creditor, they have the right to pursue anyone who signed on the debt.

My spouse is considering bankruptcy due to a business failure that I was not involved with. Can the Trustee in his bankruptcy place any restrictions or obligations on my financial affairs?

If you have nothing to do with the debts and have no joint assets, your husband's bankruptcy does not need to affect you. In order to ensure that the creditors in your husband’s estate are receiving proper payments from his income, you will be asked to co-operate in disclosing family income. Your failure to disclose such income could have an impact on your spouse's release.

I have been separated from my husband for many years. There is no formal separation agreement in place. We cannot communicate because my lawyers have a restraining order against him. He refuses to honour any part of our joint debts. Do we have to file personal Bankruptcy as a couple?

No. You can file for bankruptcy without your husband. The joint creditors will contact him wanting payment for the joint debts if he decides not to file.

A separation agreement between you and your husband has no effect on the creditors if they were not party to the agreement.

When my daughter separated from her husband, he agreed to accept responsibility for all joint debts. He recently called her and indicated that he will be filing an assignment. Is she responsible for the joint debts?

Yes. Your daughter cannot stop her ex-husband from filing a bankruptcy. Unfortunately if the joint creditors have not agreed to release her from the joint debts, it is likely that she will be liable for such debts. An arrangement between her and her ex-husband is not binding on the joint creditors because they were not part of the negotiation.

The property that we purchased is worth less than the mortgage against the property. Can we escape the debt on the mortgage by filing bankruptcy?

There are no personal liabilities on conventional mortgages. There is personal liability on a mortgage if it is CMHC insured. Usually Banks or Mortgage Companies insist on CMHC insurance for low-equity loans (less than 25% down payment). The property could be returned to the CMHC Mortgage Insured Company to reduce foreclosure costs however, they would proceed to collect the shortfall. Such liability could be discharged by bankruptcy.

I am engaged to be married and I am considering filing personal bankruptcy. My fiancE and I have some joint obligations. Will he be affected by my bankruptcy?

No. You will be required to report and account for family income. You should discuss this with your fiancé because if he does not want to report family income and expenses, there could be an impact on your discharge from bankruptcy. Given your plan to file bankruptcy, you should consider splitting your finances with your fiancé until after your bankruptcy has been completed.

What Happens To My Debts when I file bankruptcy?

Most creditors stop collection action. They will receive notice of your assignment and will consider further collection actions unwarranted. In most cases they will review your file to make sure that the debt that you have with them was legitimate. They have the ability to object to your discharge if you have not been honest.

When you are discharged most of your debts are discharged. Please consult the section on debts not released by bankruptcy in this web site.

Do Co-Signed Debts get written off in a bankruptcy?

Your bankruptcy only releases you from the debts. Co-signers will still be responsible (in full) for the debt that they co-signed on your behalf.

I HAVE FILED AN ASSIGNMENT INTO BANKRUPTCY AND THE SECURED CREDITOR WANTS ME TO SIGN SOME SECURITY DOCUMENTS AGAIN. WHAT SHOULD I DO?

You should not sign any new security documents until you have received notice from your Trustee that your bankrupt estate has no interest in the secured assets. It would be worthwhile to review the old documents with your Trustee so that he can determine why the documents need to be resigned.

This situation happens quite often. Remember that marriage does not make one spouse liable for the other spouse’s debts.
Co-signed loans by the bankrupt spouse could be a problem for the non-bankrupt spouse if the financial institution was relying on the couple’s income. The best advice in this situation is to discuss the co-signed loan with the financial institution involved.

Jointly owned assets can be a problem if the trustee has a right to the assets owned jointly. He will be looking for some type of payment from the non-bankrupt for the bankrupt’s share.

If there are co-signed debts the non-bankrupt will become fully responsible for those debts. The same applies to joint or spousal credit cards.

During the period of bankruptcy, the bankrupt spouse is expected to make payments to the Trustee based on family income. The total family income will have to be reported to complete the calculations of the bankrupt’s required contribution. Failure to report family income could have implications on the discharge of the bankrupt spouse