Will my spouse’s bankruptcy impact me?

If your spouse is considering filing a bankruptcy, it is common to be concerned about how it will impact the non-bankrupt spouse.  The financial impact will depend on several factors:  Do you have joint assets with value?  Do you have joint debts?  Does the family income exceed the threshold set by the Office of the Superintendent of Bankruptcy?  

Let me explain the bankruptcy process and thus how it impacts the non-bankrupt spouse.

Assets

In a bankruptcy, the trustee must realize on the bankrupt’s assets that have a value above secured debt and exemptions.  If you jointly own your home with your bankrupt spouse and the house could sell for $600,000 and the balance owing on your mortgage is $520,000, there is approximately $80,000 equity.  50% of this equity belongs to your bankrupt spouse and must be realized by their trustee.   They can make an offer to buy the equity back from the trustee or the trustee could sell the house with you, each receiving 50% of the equity.  

If the house is solely in the bankrupt’s name, 100% of the equity must be realized by the trustee.  If the house is solely in the non-bankrupt’s name and there have been no recent transfers, the trustee likely has no interest. 

The same analysis applies to jointly owned vehicles, RESPs or investment accounts. 

Liabilities

A bankruptcy discharges your spouse’s obligation to pay their unsecured debt. If you have guaranteed, co-signed or have supplementary cards you used on your bankrupt spouse’s debt, you will become solely responsible for the debt.  

You are not responsible for their debt just because you are married.  

Income

Your bankrupt spouse must disclose the full family unit income, including your income, to their trustee.  The trustee uses the income in determining if surplus income payments are required to be paid.  You are not required to make the surplus income payments, but your income will impact the calculation.

Credit Rating

Your spouse’s bankruptcy on its own will not impact your credit rating.  If you are liable for any of their debts and do not make payment arrangements, then the creditor can report on your credit report.

If you have specific concerns, I recommend you attend the initial meetings with the trustee so you and your spouse can be aware of implications and make an informed decision.  I have been helping debtors obtain relief from overwhelming debt for over 30 years.  Reach out to me today.