Filing a personal assignment in bankruptcy or consumer proposal will immediately provide you relief from most creditor’s collections proceedings and ultimately eliminate your unsecured debt. A formal stay of proceedings under the Bankruptcy and Insolvency Act stops a garnishment of your wages and collection calls. Unfortunately, this protection does not extend to an individual who co-signed any of your debt.
When a person co-signs or guarantees a loan or jointly borrows funds, they are taking on the risk that they could be responsible for paying the entire debt. If you, as the primary borrower, miss payments, file a consumer proposal or a personal bankruptcy, the creditor will pursue the co-signor for payment of the full amount of the debt. The creditor may be willing to accept a payment plan, but the co-signor will be responsible to negotiate these terms with the creditor directly.
Further, if someone had a supplemental credit card on one of your credit card accounts, they could be responsible for payment of the charges they incurred with their supplemental card. They should consult with their own legal counsel for advice.
Leaving someone else responsible for your debt is not ideal, but the Bankruptcy and Insolvency Act requires that you include all of your creditors. You cannot purposely omit a creditor from your bankruptcy in order to protect a co-signor. Depending on the amount of the co-signed loan in relation to your total debt, and the ability of the co-signor to pay the debt, a bankruptcy may still be the best solution to provide you debt relief. Our compassionate Licensed Insolvency Trustees understand the delicate nature of this situation and will explain all solutions based on your specific financial circumstances. Reach out to us today.
By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency
and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
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