There are many reasons why someone would have joint, cosigned or guaranteed debts. Both parties are responsible for the debt if they have both signed for it. That means that if one of the joint debtors does not pay, the other joint debtor is still responsible to pay off the debt. The bank uses joint debts to ensure that they have two people to go to if one signer poses a financial risk. Common joint or cosigned debts include mortgages, car loans, student loans and personal loans.
How are joint debts handled in a bankruptcy or consumer proposal?
A consumer proposal or personal bankruptcy deals with the debts of the person filing. So if someone has joint debt and they file for a consumer proposal or personal bankruptcy, that joint debt will become the responsibility of the party not filing and therefore they will be contacted by the collector for payment. If both joint debtors file for bankruptcy or consumer proposal then both joint parties will be protected from the creditor.
Should you file jointly or individually?
Therefore, how to deal with the joint debts together or separate will depend on a few factors:
- How much of the total debt is joint or cosigned?
- Could the joint debtor afford to keep making the payments if the other party files for bankruptcy or a consumer proposal?
- Are the joint debtors on speaking terms and do they want to work together on dealing with the debts? Many times following a separation, ex-spouses will not work together to deal with these joint debts.
- What is the financial position of the joint parties involved?
- What makes up the other debts?
It is important to understand joint debts before someone considers a consumer proposal or personal bankruptcy. Review your debts and confirm if there is a joint, cosigned or guaranteed debt – if this is the case, keep in mind that your decisions will impact the other party.
Let’s consider two examples:
- A husband and wife have a $30,000 joint line of credit. They have some other debts as well, but the $30,000 is their largest debt. Filing a consumer proposal or personal bankruptcy together is logical as neither of them can handle the $30,000 joint debt individually.
- A single person has $60,000 in debts, of which $10,000 is a co-signed student line of credit with the person’s father. Just the single person filing a consumer proposal or personal bankruptcy is logical as the individual cannot handle the $60,000 in debt and the father can afford to make the $10,000 student line of credit payments.
Thinking through how filing a personal bankruptcy or consumer proposal will impact each party is an important factor to consider before filing. If you need help deciphering which debts are joint and how they might be affected in a bankruptcy or consumer proposal, contact a licensed trustee in bankruptcy to discuss your situation and come up with a plan to deal with your joint debts.