Spouse wants to declare bankruptcy
It’s not unusual for someone to get nervous when their spouse is contemplating a bankruptcy. They worry their credit history, banking relationships, even their employment maybe compromised in some way. Recently I received an email from Jocelyn, who asked these questions:
“If my common-law husband were to declare bankruptcy, what would happen with the assets/debts we share jointly? It’s my understanding that as long as we continue to make our vehicle and mortgage payments, we can keep the truck, van and house. Is that correct?
If we both declared bankruptcy, what would happen to the boat we own (no loans on it, worth about $30,000). Would we have to lose it?
I’ve been deliberating on this for days. We really don’t want to declare bankruptcy, but it’s becoming overwhelming.
Thank you for any answers you can provide. I really appreciate being able to bend your ear here.”
I replied “let’s start with if your husband declares bankruptcy and you do not:
He would no longer be responsible for any joint debts – but you Jocelyn would still be liable for the full balance owing. I have seen instances where the lender makes demand payment in full of the surviving spouse, but it does not happen much. But regardless, as a couple you don’t get any benefit or debt relief from joint debts in this instance.
Assets are different. He is presumed to own 50% of any and all joint assets, and depending what the asset is, the trustee is expected to realize his share of these assets on behalf of his creditors. That said, stuff you have around the home; personal effects etc. no one is going to come for.
Stuff that can make the process a little more complex – your home; your boat; money in the bank; RRSP contributions in the past year; RESP’s; whole life insurance policies; cars over a certain value, pending tax refunds etc etc. This is true whether one or both of you declare bankruptcy.
You have clearly done some homework, but Jocelyn an accurate answer depends on knowing more about your situation. The value of your home, relative to the mortgage size is hugely important, since the equity in your home is fair game for the trustee.
Also, if your net household income is over a certain threshold amount, a bankruptcy would be a 21 month process, and you would have to pay a percentage of the surplus income each month to your creditors via the trustee.
I invite you and your husband to come see me – speak openly; and I will give you firm answers to all your questions and discuss different scenarios. There would be no charge for that meeting.
Or, if you prefer, I can refer you to a bankruptcy trustee, who will assess your situation in full, and lay out your alternatives. It may be that filing a Consumer Proposal is a more palatable solution.”