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.
What are the 2014 surplus income amounts? I can only find the amount for 2013.
Thank you.
Unfortunately, they have not been published yet. We expect them in March – if you want a “guess-timate” then add 2% to the 2013 numbers. We will publish something as soon as the 2014 numbers are released so keep checking back to this site.
Under the joint bankruptcy filing, is the asset exemption limit doubled? Because under the joint proposal filing, the eligibility limit for the consumer proposal is doubled.
Tina: Yes, the exemption limits are for each person, so in a joint bankruptcy each person would have a full exemption limit for the assets they own.
Is it possible to have a joint application split if the 2 individuals are now estranged and the other party has not completed their obligations for discharge?
Lee: Yes, it is theoretically possible to split a joint bankruptcy into two separate bankruptcies. The most common mechanism for doing that is, once one of the parties has completed all of their duties, the trustee can then apply to court for that person’s discharge, so one person is discharged and the other party remains bankrupt until they complete all of their duties. This is a reasonably complicated situation, so you should discuss this in detail with your trustee, as there may also be other options available.
How do the surplus income payments work if my husband and i file joint bankruptcy and i am a stay at home mom with no income?
The surplus income calculation is based on family income. In your case, if you have no income, the only income in the calculation would be your husband’s income. Your licensed insolvency trustee can do a sample calculation for you before you file so you can get an idea of how it will work in your case.
So in a joint filing the surplus income will remain the same (monthly payments are the same in a joint filing as a solo filing)? Ie. I pay $250 a month and my wife decides she must file as well, will we both owe $250, or will it just be one payments still? Or does the surplus income double meaning surplus income would be under $100 and nobody would pay and the bankruptcy would be discharged in 9 months?
Hi Jim. The answer depends on whether or not your wife has any income.
For example: if only you have income, and you are $500 over the limit, your surplus income payments would be $250 per month, because your family is $500 over the limit, and you pay 100% of the penalty. However, if your wife and you both have exactly the same income (which is unlikely, but it keeps the example simple), and your family is $1,000 over the limit, the surplus income for the family is half of that or $500. If only you are bankrupt, you pay your share (half in my example) of $250. If your wife then goes bankrupt, she would also have to pay her share ($250 in my example).
So, the answer depends on how much income each spouse is earning during the bankruptcy. Your licensed insolvency trustee can show you the specific calculations for your circumstances.