One of the most common questions posted to the internet chat groups about filing for personal bankruptcy in Canada has to do with spouses and whether or not if one files for bankruptcy, do they both have to. The short answer is no, each spouse is free to decide what the best solution to their financial problems may be. You do not have to file for bankruptcy or a consumer proposal (or a debt management program or debt settlement program) just because your spouse has filed.
Having said that, it is possible for spouses to both file for bankruptcy – in fact, they may file together in something called a joint filing.
In order to file jointly (together) two or more individuals have to have all or substantially all of their debts the same and the trustee administering the file has to agree that a joint administration makes sense. The common-law interpretation is that 90% of the debts overlap, but it is interpreted pretty loosely.
The second criteria is pretty easy to meet – in most households the money goes into a communal pot and all of the monthly bills are dealt with together. In these situations it just makes sense to file one bankruptcy for the spouses together since that’s how they handle all of their bills.
Let me give you an example.
Let’s say John and Sue are married and they are in financial trouble. They have joint credit cards, loans and bank accounts. John has an income tax debt that is just in his name and Sue owes a local veterinarian for work that was done on the family dog. Sue doesn’t work outside the home – she looks after the couple’s two kids. Since John has all of the income and most of the debt is joint, it probably makes sense to file a bankruptcy for this couple jointly.
If we change the example, such that Sue is now working full-time and has her own income tax debt, as well as a personal line of credit just in her name, it might make more sense to look at each spouse’s situation independently. Maybe John files for bankruptcy, but Sue should file a proposal. Each case is different, but the point is, in this new example, a joint filing may no longer make sense.
Pros & Cons of Joint Bankruptcy
The advantage of filing jointly may be a reduction in fees. One procedure for two people likely will cost the same as one procedure for one person. Said another way, if the spouse’s file separately they may end up paying the basic costs of filing twice.
A disadvantage of filing jointly is that the spouse’s procedures are tied together. In our example above, if John and Sue file jointly and John fails to do all of the required paperwork then Sue may not be eligible for discharge from bankruptcy. If couples are experiencing marital problems, we often caution against filing jointly for this very reason.
Filing a joint bankruptcy is one way to deal with ‘joint debts’ between a bankrupt and non-bankruptcy spouse. If one spouse goes bankrupt and the other spouse has co-signed on a loan they are still responsible for the full amount owing.
That is why you should always talk to a trustee about your family situation to determine:
- whether or not both spouses should file for bankruptcy;
- if you are eligible to file jointly and
- whether or not it makes sense to do so in your situation.
Joint filings for consumer proposals are quite common. Joint filings for bankruptcies are less common, but still happen often enough that they should be discussed before you make your final decision about what to do to solve your financial problems.