No. Filing for bankruptcy in Ontario does not directly affect your spouse.
It is a common misconception that if you are married, you are automatically responsible for you spouse’s debts. That is not the case.
You are only responsible for debts in your name, that you have signed for. Your spouse is only responsible for debts that they have signed for and that are in their name. Getting married, or living common-law, does not automatically make you responsible for your spouse’s debts.
Wondering whether or not a bankruptcy affects their spouse is one of the most often asked questions we receive. In our FAQ about bankruptcy and your spouse we will address several issues that concern our readers.
If you go bankrupt in Ontario and all of your debts are in your name, your bankruptcy will not affect your spouse’s credit or debt obligations. A note about your bankruptcy does NOT appear on your spouse’s credit report. Your spouse’s credit report only has information about your spouse; your credit report only has information about you.
However, your spouse is indirectly affected by your bankruptcy. If, after you are discharged from bankruptcy in Ontario, you and your spouse decide to buy a house, there will be a note on your credit report indicating that you went bankrupt, which may make it more difficult, although not impossible, to qualify for a mortgage. Obviously this indirectly affects your spouse, since it may be more difficult now for both of you to buy a house together.
Joint or Co-Signed Debts
If you file bankruptcy and you have an joint debts (you both are on the loan agreement) or your spouse co-signed a debt for you, then your spouse will remain obligated to repay the debt in full, even though you have gone bankrupt. Your spouse will continue to be responsible for the full 100% balance outstanding. For this reason, if there are significant joint debts, you may want to talk to your trustee about filing jointly or both spouses filing for bankruptcy to deal with all of your family debts.
Banks and credit card companies will often ask a spouse to co-sign for a loan. If you co-sign for your spouse, you are responsible for the entire debt. You are liable not because you are married; you are liable because you signed for the debt.
Supplementary Credit Cards
Often when you get a credit card you will also get a card for your spouse. Even though the account may be in your name, if your spouse signs for the card, they may now become liable for the entire balance owing. Before going bankrupt you should review all of your debts to determine if your spouse is joint on any of your accounts.
Separation or Divorce And Bankruptcy
While your spouse is not liable by virtue of being married to you for your debts (your debts remain yours alone) the same principle applies in a divorce. If you had joint debts while you were married, a divorce or separation agreement cannot legally remove any one spouse from the requirements to repay that debt. If you want one spouse to be removed from the obligation to repay joint debts, you will need to receive written agreement (basically a new loan agreement) from your lender. If you are separated and one spouse files for bankruptcy, the other spouse will be liable for joint debts, no matter what your separation or divorce agreement says.
These issues are complicated. It is often difficult to determine if a credit card is a joint card (because you both signed for it), or just a supplementary card (where you got the card for your spouse, and they never applied for it).
If you are considering filing for bankruptcy in Ontario and want to know how filing for bankruptcy in Ontario will affect your spouse, please contact a licensed Ontario bankruptcy trustee today for a free consultation.
When you meet with the trustee, bring copies of all loan documents and recent statements so that the trustee can review them to determine if you have any joint debts.