Debts in a marriage can be incurred separately or they can be considered joint debts. Depending on the unique family circumstances it may be necessary for one, or both spouses, to file for bankruptcy in order to eliminate their individual obligations to repay these debts.
A joint bankruptcy happens when both spouses file under one application. Filing jointly means that your bankruptcy is administered as one file.
Why would you want to file bankruptcy together? Whether or not you should file jointly or separately depends on:
- who owes the debts that need to be discharged
- what assets are owned by each spouse
- the cost of administering the bankruptcy
- the effect on each spouse’s credit rating
Let’s look at some examples to understand what might make sense.
Both spouses have debts that need to be eliminated
John and Mary are married. They each have debts they cannot pay and decide it may be necessary for both to declare bankruptcy. They could file separate bankruptcies, however because the cost to administer one file instead of two is lower, it may make sense for them to file jointly. The advantage to John and Mary are that the contributions the Trustee will ask them to make to the bankruptcy could be less jointly than if they file separately.
Debts are only in one spouses name
It is also possible that only one spouse is in debt trouble. In our case, John and Mary are still married, but all of the debt is in John’s name. Mary has no debt, and is not a cosigner on any of John’s debt. Mary does not need to file bankruptcy so John can file on his own. The fact that John files for bankruptcy does not have an impact on Mary’s credit rating.
One spouse has been bankrupt before
John and Mary are still married, both have debt, and neither can pay. But, John was bankrupt before. A second bankruptcy will take longer and so in this case it may make sense for them to file separately so Mary can be done sooner.
Each spouse chooses a different debt relief option
Same people, but in this case, Mary has a very good income while John’s is quite low. In this case, it may actually make sense for Mary to file a consumer proposal to repay a portion of her debt, and John file bankruptcy.
The combinations are somewhat endless- in some cases, one party may file bankruptcy while the other works with a credit counsellor, or even just continues to manage on their own.
The next step you should take is to talk to a bankruptcy trustee. They will take the time to review each of your individual situations and go over all of your options with you.
My daughter and her common-law spouse went through a bankruptcy approx. 7 years ago. Since then they split up and reconciled 3 years ago. Since then they maintain separate bank accounts and file separate income tax returns. It seems apparent that he is heading in that direction again. Will it affect her this time around should it happen. She seems to think it will not however I want this questioned answered so I can inform her. Thank you.
Hi Judy. If your daughter has her own bank account, and no assets or debts joint with her spouse, she would not be directly impacted if he goes bankrupt. Of course if they have joint debts or assets (like a house) she would be impacted, so she may want to talk to a licensed insolvency trustee to review their situations.