It’s a major concern for couples with debt. Your spouse is exploring bankruptcy as a debt relief option. You’re considering what the impact will be on yourself, and wonder: should I file too? Couples often ask me this and my answer is always:
It depends on their debts and their situation.
Bankruptcy is a government program designed to provide individuals with debt relief to get a fresh financial start. You do not have to file for bankruptcy just because your spouse is insolvent. If one spouse files for bankruptcy, it does not mean the other spouse is automatically bankrupt – that’s a myth.
While every couple’s situation is unique, they can be grouped into three scenarios:
- All debts are in one spouse’s name
- All debts are joint
- Both spouses carrying individual debts
All debts are in one spouse’s name
If all or most of the debts are in one spouse’s name, then the other spouse would not need to consider bankruptcy. This is a common situation for couples in a second relationship where one of them came into the relationship carrying debt from their previous situation.
All debts are joint
If the debts are primarily joint, it would make sense for both to file bankruptcy together, because if only one spouse filed, then the joint debts would become the sole responsibility of the joint debtor. Dealing with the debts together allows the couple to be cleared from their debts and get a fresh start. This is a common issue with couples who have been together for a longer period of time and their debts have been accumulating over the years.
There are advantages for couples to file at the same time, such as:
- Both spouses can eliminate the debt stresses
- The family budget can start to balance again
- Savings can start for an emergency fund, children’s RESP’s, retirement funds, etc.
- They can start rebuilding their credit together so they can work towards buying a house in the future
- Stop collection letters and calls
- Legally deals with the debts through a government program
Both spouses carrying individual debts
If both spouses are carrying debts but there are few or no joint debts, then we need to consider each individual situation. Are both spouses’ individual debts too large to manage on their current income and situation? If so, then both filing for bankruptcy at the same time will allow the debts to be dealt with and let them focus on their future debt free. But if one of the spouses have a lower and manageable debt level, then it may be better for that spouse not to file bankruptcy. They will then be able to make a payment plan going forward after the other spouse files for insolvency to eliminate his or her debts and monthly payment commitments. This would enable the couple to focus on their future while balancing their budget, eliminating financial stress.
If you and your spouse are looking at your options, consider the three situations above to determine which one applies the most to you and your spouse. Then meet with a licensed insolvency trustee, who can provide you with all your options. You’ll then be able to make a decision that will works for the both of you.