Filing For Bankruptcy In Canada & Your Spouse
Bankruptcy proceedings in Canada do not impact your spousal partner directly.
Debts are your property and you, solely, are responsible for their repayment.
In the event that you you get your debts discharged.
Before and during the process, your spouse is in no way responsible for your debts.
It is a common belief that due to the fact that you are in a marriage, you are responsible for the debts of your partner.
This is false.
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However, collection representatives will often intimidate you by saying if you dont pay, they will pursue your spouse.
Understand that this is a form of intimidation and they have no legal recourse against your partner.
Of course, there are exceptions.
In the event that your partner co-signed for your debt or in any way guaranteed it, they are responsible.
It makes them legally party to the loan and, if you default on payments, they are required to issue them.
In fact, in the event of failed payment, the creditor can demand your spouse pay in full.
This is true of joint credit cards, shared mortgages, and joint car loans.
Bear in mind that, in the event of co-signing, it is the fact that they guaranteed the loan, not their being your spouse, which makes them responsible for the debt.
Of course, there are other impacts on your spouse of your debt.
It could make it more challenging to get joint credit in the future.
What Assets Are Part Of The Bankruptcy Estate In California
California is a community property state, which means that barring an agreement to the contrary, property acquired during the marriage normally belongs to both spouses no matter whose name is on the title. That means whether you file a bankruptcy jointly with your spouse or you file individually, all that community property is part of your bankruptcy estate. When you file individually in a community property state like California, a lot more property becomes part of the bankruptcy estate and subject to bankruptcy law than would be the case if you filed individually in a common law state. Your California bankruptcy lawyer can explain what property can be protected by bankruptcy exemptions.
If Filing Bankruptcy Consider Spouses Assets
Beyond just debt, another issue for married couples to consider when evaluating bankruptcy is how assets are held. If one spouse owns property in her name only and doesnt file bankruptcy, it wont become part of the bankruptcy estate.
This could be an important factor depending on the value of the asset, because Chapter 7 is technically a liquidation. All the property you own that exceeds the value of your states exemption laws is subject to sale by the bankruptcy trustee. However, the trustee only has jurisdiction over the property of the party that files. For example, a wifes home that is only in her name does not become part of her husbands bankruptcy estate.
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Does My Spousal Income Count Towards The Bankruptcy If He Or She Does Not File With Me
While filing for individual bankruptcy, it is important to note that spousal income counts even if he or she is not part of the petition. Income generated by a spouse dictates the type of bankruptcy one gets to file.
One can only qualify for an individual bankruptcy filing if their spousal income is below a certain amount under Chapter 7. For Chapter 13 filing, a spouses income must be above a certain income level. It is common for a bankruptcy attorney to ask for income generated by each spouse. You will find that both incomes are used to evaluate eligibility as it pertains to the individual filing.
Can Personal Bankruptcy Affect A Spouse
If you file for bankruptcy, it may still affect your spouse in various ways. When a person is made bankrupt, they will automatically have a Trustee in Bankruptcy appointed over their estate. The Trustee’s job is to realise the assets of the bankrupt person to pay off as much of the debts as possible. The first point to be clear on is that assets owned solely by a non-bankrupt member of a couple cannot be taken to pay for their spouses debts.
However, this can become more complicated and very emotional where jointly owned assets are involved. For example, couples will naturally not want to be evicted from their family home . Therefore, in any situation, couples will need advice on the complex rules relating to bankruptcy and what can and cannot be touched by a Trustee in Bankruptcy.
Can Creditors Collect From Your Spouse
Depending on the laws of your state, your spouse might not be liable for the debts that you’ve incurred individually. However, even if your spouse isn’t obligated, a potential judgment creditor might be able to collect from both you and your spouse.
For instance, if the two of you jointly own assetssuch as a bank account she deposits income intothen a judgment creditor might be able levy the account. For more information, read Bank Levies on Joint Accounts .
Filing for bankruptcy might be a good option for you, assuming you meet the eligibility requirements. Your spouse doesn’t have to file bankruptcy with you, and probably shouldn’t, especially if she has little or no debts of her own.
How Will The Bankruptcy Affect Both Of Your Credit Scores
Filing bankruptcy jointly with your spouse makes sense if you are both burdened by debt in both your names. If your spouse files but you dont, your jointly-held debt will become your responsibility.
However, if you file jointly, both of your credit scores will be adversely affected. This will hinder your ability to buy a home, car, or start a business for several years following discharge.
If you and your spouse plan on doing any of these things, you may need to consider filing alone. It may be better for the more indebted spouse to file so the other spouse retains a good credit score. The spouse who doesnt file can even help the other improve their credit score by co-signing on new debts and credit cards.
Thus, its important for both spouses to review their credit reports when considering whether to file bankruptcy alone or jointly. Its also vital that the spouse who does not file reviews their credit report regularly. They will need to ensure that the other spouses bankruptcy does not show up on it.
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Where Can I See Insolvency Notices In The Gazette
You can view all corporate and personal insolvency notices on The Gazette website.
The Gazette also provides a data service which gives access to official intelligence on all UK businesses, corporate and personal insolvencies. Benefits of The Gazettes data service include:
- Bespoke reports – tailored around your specific business
- Geo-targeted editions – available for specific geographical targeting
- Custom filters – specific custom attributes
- Data at regular intervals – delivered at a rate to match your business needs
For more information on The Gazettes data service, contact the team on 01603 985949 or email .
About the author
David Kirk is a chartered accountant and licensed insolvency practitioner at south west-based insolvency specialist firm Kirks.
What Happens When You File Bankruptcy
When you file bankruptcy, each of your open credit accounts should say included in bankruptcy.
- If the credit account is joint with your spouse , the joint account holders tradeline should NOT say included in bankruptcy
This is because the joint account holder did not file bankruptcy, and still owes all of the money.
The reason that lenders ask for cosigners is that they are afraid that the primary borrower might not be able to repay the loan, so they want someone else to pay it in the event of a bankruptcy or insolvency.
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What To Do Next
Its always wise to consult with a bankruptcy attorney before filing. Lawyers have experience and understand the nuances of the rules and laws.
Consider the inheritance that may be coming to your spouse. Do you understand the rules regarding said money? An exemption could be filed for the inheritance, but only up to a certain amount. If you become eligible for an inheritance with six months of fling, that money could become part of the bankruptcy estate. If it sounds overwhelming, it might be. And it explains the importance of consulting and considering an attorney.
Remember that the first meeting typically is free use that to your advantage to gain some insight and understanding. A nonprofit credit counselor who can assess your financial situation may even be able to help before filing as well. Take advantage of any and all help.
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Does My Business Bankruptcy Affect My Spouse’s Credit
Bankruptcy can have far-reaching effects on those who decide to go through the process. Whether a business bankruptcy will affect your spouseâs credit will depend on several factors, in particular, where you live.
The following states are community property states: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you live in one of these states, any income or property that is earned or bought during the marriage is considered community property.
This also means that any debt that is incurred by one or both spouses during the marriage is also shared. If you have a business and are considering filing bankruptcy, it might make sense for both of you to file in order to wipe out the business debts and protect your community property and income.
All others are common law property states, and debts incurred by one spouse are generally the responsibility of that person only. However, there are caveats to common law property. Debts that may be jointly owned and are thus the responsibility of both spouses include:
- The names of both spouses appear on property titles or accounts
- Both spouses guaranteed payments to loans or other debts
- Both spouses entered their credit information for a loan and/or
- Debts that benefited the marriage, such as child care and groceries.
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When Doesnt It Make Sense To File Without Your Spouse
Itâs rarely clear cut whether it makes sense to file with or without your spouse and in the end it depends on your financial situation and what state youâre filing in.
Here are a few common reasons folks want to file without their spouse that donât really hold up when you look at the full picture:
You donât want to impact your spouseâs credit : Unless they stay current and pay off all joint debt, their credit score will be negatively affected by your bankruptcy. Plus, your bankruptcy discharge wonât protect them from debt collectors.
You donât want to include your spouseâs property in the bankruptcy estate : All your marital assets are part of the bankruptcy estate whether you file together or not. Even if youâre not in a community property state, if you have joint property filing alone may not be enough to protect your spouseâs property interests.
Bankruptcy What Is It
The Australian Financial Security Authority defines bankruptcy as a legal filing or declaration that an individual cannot pay their debts. Also known as a state of personal insolvency, bankruptcy is an option that individuals can consider and must themselves initiate when they are trying to get a handle on unmanageable debt.
If and when you decide to instigate this, youre essentially entering into voluntary bankruptcy, known as a debtors petition. However, this is just one of the options open to you under the Bankruptcy Act of 1966. Before you take this step, make sure to seek free financial advice on your next best course of action.
To be eligible for filing for bankruptcy, you must:
- Show that youre unable to pay your debts when they are due
- Be present in Australia or have a residential or business connection within the country
However, there is no upper or lower ceiling on the amount of debt and there is no fee to apply for bankruptcy.
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Risks Of Consolidating Debt After Marriage
Its not unheard of for spouses to consolidate their debt once they are married. A common strategy is obtaining a joint consolidation loan to deal with problem debt more affordably, especially if one spouse has a lower credit rating than the other. However, the risks to consolidating debt can outweigh the benefits. Once you become co-borrowers on a loan, you both will be legally obligated to repay the loan. Also, it is not possible to have a name taken off a joint loan without the lenders permission, and because the lender approved the loan based on a joint application, they may not be willing to do so. Should one spouse stop making payments due to marital breakdown, the lender will look to you for full payment, which can become a serious financial burden. For these reasons, it may be wiser to keep your personal debt obligations separate and deal with problem debt individually.
The Bottom Line: You Are Responsible For Your Debts
The lesson to be learned from this post is simple: your debts are your debts only, and only you are responsible for them. This rule has big implications if youre preparing for bankruptcy because if you file without your spouse, your joint debt will become your spouses full responsibility.
In order to make the correct decision, make a list of the debts that are really holding you back. Are they primarily incurred in one spouses name? If so, it may be best for the heavily indebted spouse to file bankruptcy to preserve the others .
If, on the other hand, joint debts are your main problem, it will be necessary for both spouses to file in order to truly rid yourselves of debt.
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What Debts Are Discharged When I File Bankruptcy Individually In California
When you file for bankruptcy separately without your spouse, only you will get a discharge. All your dischargeable debts that are separate from your spouse will be discharged as will your liability for dischargeable joint debts. Because California is a community property state, creditors may not come after community property that was discharged even if only one spouse filed bankruptcy. Should you get a divorce or die, your non-filing spouse loses this benefit. Also, the creditors may still go after the separate property of the spouse who did not file if they were also liable on the debt.
File For Bankruptcy After The Fact
If you are asking yourself, can I sponsor my spouse before bankruptcy? The short answer is yes, you can sponsor your spouse first. The reality, however, is that this option is a little trickier.
For one, the timeline to complete your sponsorship could take longer than the average personal bankruptcy. According to the Government of Canada, it takes an average of 12 months to process a sponsorship application. You are also considered financially responsible for your spouse for 3 years after your application is approved. Unless you have surplus income, you will likely receive your discharge from bankruptcy after 9 months. You could put the process behind you in under a year.
You might also be wondering How does bankruptcy affect my spouse in Canada? When you sponsor someone, you promise the government that you can cover their basic financial needs along with your own. If youre bankrupt, this can be difficult to accomplish.
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Should I File Bankruptcy Jointly Or Individually In California
There are many factors that enter into whether or not its most beneficial to you to file jointly or individually in California, and they depend on your specific circumstances. But here are two to consider:
- In California, you may be able to take more in the way of exemptions if you file with your spouse, which is a good reason for filing a joint bankruptcy for many people. If you cannot exempt all property without filing jointly, then filing jointly with your spouse may be the better course. Discuss this with your attorney, because you have options regarding exemption methods in California.
- Since creditors cannot come after your community property even if just one of you file bankruptcy, it may be to your advantage to file individually in order to preserve your spouses good credit rating.
When You Might Want To File After Getting Married
If you and your spouse both have a significant amount of debt, you may want to file for bankruptcy together after you get married. This will allow you to save money on court costs and legal fees because you’ll only need to file one case. You’ll also save time on meetings with trustees and creditors.
It’s important to note that if you go this route and you or your spouse has significant property assets, they’ll be a part of your bankruptcy sale. In this situation, it’s a good idea to file for bankruptcy individually so you can protect these assets.
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Will The Bankruptcy Affect Jointly
Another important consideration in deciding whether to file bankruptcy alone or jointly is the amount of debt in your spouses name. It is not the case that simply because you are married, you are liable for your spouses debts. You and your spouse are equally responsible for debts that are in both your names.
Any debts you owe in your own name are your own responsibility. Debts your spouse owes in their name alone are their responsibility. So, credit cards opened by your spouse before you were married contribute to your spouses debt, not yours. A mortgage you acquired jointly after you were married is debt that belongs to both of you.
If you and your spouse are mainly burdened by debts held jointly, filing together makes the most sense. This way, you both can eliminate the debt and gain a financial fresh start. If you file alone, your spouse could be pursued for these jointly-held debts.