Your spouse won’t be affected by your consumer proposal unless you have joint debts. If you have joint debts, your spouse may want to consider filing a joint consumer proposal, a separate consumer proposal, or creating a payment plan to manage their debts. Any assets owned jointly or separately with your spouse would be unaffected by your consumer proposal.
Suppose you are considering filing a consumer proposal to obtain relief from your debts. In that case, a common concern for a married couple or a common law relationship is how this will affect my spouse. The good news is that, in most cases, your spouse will be unaffected. They won’t have to provide any information to the Licensed Insolvency Trustee unless they are willing to provide information on their income earned. However, before filing a consumer proposal, you should check if any of your debts are joint with your spouse, such as joint credit cards, as this may affect them after filing your consumer proposal.
Understanding Joint Debts
Joint debts can be where you have a shared or co-signed with more than one person.
Shared debt means that more than one individual is responsible for repaying a debt. A typical example is when a married couple purchases a house with a mortgage, and they are both registered with joint ownership interest on the house and both responsible for the mortgage. The mortgage debt is owed by the couple jointly and not split 50/50.
For example, if a couple obtained a mortgage for $500,000, then both parties would be responsible for making the mortgage payments. If the couple divorces and one spouse doesn’t make any more payments, the other spouse will be responsible for the remainder, not 50% of the mortgage.
Shared debts can also include credit card debt and lines of credit.
Co-signed debts differ from shared debts as the original debt is with one party, and another party agrees to be a co-signor. If the original debt is not repaid, the co-signor would be liable for paying for the balance.
Co-signed debts are common when the debtor does not have good credit, and the lender wants protection in case the debtor cannot pay the terms of the debt. Having someone with good credit co-sign the loan will ensure the lender will have someone else to collect from to repay the balance of the debt. For example, if you want a car loan but don't have good credit, you could ask a family member or friend to act as a co-signor to help you get approved for the loan.
Can I File a Consumer Proposal Without My Spouse?
A consumer proposal is an agreement between an individual and their unsecured creditors. A spouse is not included in a consumer proposal unless they want to file a joint consumer proposal.
Most consumer proposals are filed by individuals rather than together with their spouses, usually because they have different financial situations and different debts. Your spouse's debts could be handled separately. They could file their own consumer proposal now or in the future, but they don’t have to be included in yours.
Can Creditors Collect From My Spouse Once I File a Consumer Proposal?
If you file a consumer proposal, you may be concerned that creditors can still collect from your spouse or take funds from a joint bank account. As explained above, the creditors can only collect from your spouse if you have a shared or co-signed debt. If you default on a debt that is shared or co-signed with your spouse, the creditors will likely try to collect from your spouse after you file a consumer proposal. If this is the case, consider filing a joint consumer proposal, or your spouse could consider filing a separate consumer proposal. It would be best to consult a Licensed Insolvency Trustee for your options before filing a consumer proposal.
What is My Spouse’s Involvement in the Consumer Proposal Process?
When you file a consumer proposal, you must provide the Licensed Insolvency Trustee with information on your liabilities, assets and income. The Trustee will review if you have any shared assets or liabilities and how this could impact your consumer proposal.
For calculating your household income, it is optional whether your spouse wants to disclose their income to the Trustee. Your spouse does not need to provide this information, but if your spouse earns less than you, then providing this information may help negotiate a lower offer to your creditors. Otherwise, your spouse has no other involvement in your consumer proposal.
What Happens to My Spouse and Our Assets in a Consumer Proposal?
When you file a consumer proposal, you keep your current and future assets. Therefore, any assets owed by you and your spouse are unaffected by the consumer proposal.
Will a Consumer Proposal Affect My Spouse’s Credit Rating?
If you file a consumer proposal, it will impact your credit rating with an R7 rating but will not impact your spouse’s credit rating unless she also files a consumer proposal. If your spouse has shared or joint debt, which you included in your consumer proposal, then any balances owing will become payable by your spouse and appear on their credit report. However, no similar credit rating will appear on their credit report unless they file a consumer proposal.
Can I Use My Spouse’s Credit Card While in a Consumer Proposal?
When you file a consumer proposal, you must destroy all your credit cards for the creditors included in your consumer proposal. However, your spouse may have their own separate credit cards where they provided you with a supplementary card. In this case, you can still use that credit card since your spouse is the primary cardholder. By your spouse providing you with an additional card, you are using their credit, not your own, when making a purchase. This means the credit card account activity will only be reported to the credit bureaus for your spouse's record, not yours.
During the consumer proposal, you can apply for a secured credit card or an unsecured credit card and don’t have to wait for the proposal to be completed before applying. This is an easy way to start rebuilding your credit while in a consumer proposal.
If you are filing a consumer proposal, it is best to include your spouse in the decision-making process. In most cases, they won’t be affected by your consumer proposal; however, if you have any joint debts, you should speak with them first so they can understand the possible consequences. You may want to include them in your discussions with the Licensed Insolvency Trustee, so they know the process and can ask any questions.
If you are experiencing financial difficulty, you may have other options to consider before choosing bankruptcy. Speak to a Licensed Insolvency Trustee at Litvack Group to review your options and find the right solution for your finances.