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Can Just One Spouse File Bankruptcy?

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Couple sitting by one another worried about debt and considering options such as one of them filing for bankruptcy

Whether you move in as a couple or get married, your financial situation can change in several ways. Still, managing your debt should be your first priority. But if you struggle with managing your debts, will the consequences you face also affect your loved one? If you need to file for bankruptcy, will your partner need to file as well?

Achieving financial security is one of the most important goals you and your partner can have, and knowing how each of your financial situations can affect each other can help you plan for the life you want to have.

Today, we’re going to look at how bankruptcy can affect couples and the unique situations people may face if they decide to take out a loan together.

If you or your spouse is struggling with debt, please speak with the team at A.C. Waring & Associates. Through proven finance strategies and debt solutions, our mission is to help you and your loved one take control of your money.

Your Debts Are Your Own

So, can one spouse file for bankruptcy and not the other? Yes.

In Canada, debt is an individual responsibility. If you’ve taken out a loan, you are the only person responsible for paying that loan back. If you end up filing bankruptcy, it’ll only affect you and your financial situation. Your spouse will not need to file bankruptcy, and their debt and credit history will not be affected.

However, this is only the case if your spouse did not co-sign or guarantee your loans in any way. If your spouse has co-signed a loan for you, or you’re both co-borrowing a loan, then your spouse will also be responsible for paying that loan back. They may not need to file bankruptcy, but the loan will be their responsibility, as well.

What Is Co-Signing vs. Co-Borrowing?

It’s common for couples to co-sign or co-borrow a loan, but it’s important to understand that there is a distinct difference between the two:

Co-Signing a Loan

Co-signing means the co-signer is added to the main borrower’s loan application. If the main borrower defaults on the loan, then the co-signer is responsible for paying it back. Typically speaking, the co-signer doesn’t use the money from the loan.

There are a few reasons why someone would co-sign a loan, but one of the most common is to help someone with bad credit history secure a loan or build credit. Co-signing a loan could also help main borrowers find better interest rates than they would if they signed the loan themselves.

If you are thinking about co-signing a loan for your spouse, you should be comfortable enough with their credit and debt history to ensure that you won’t end up paying for the entire loan yourself if they default. Trust is key when it comes to co-signing a loan, so please make sure you understand the consequences you might face if your spouse defaults on a loan you co-signed.

Co-Borrowing a Loan

Co-borrowing a loan is a little different because it gives the co-borrower a right to the money or property being loaned. Joint mortgages or business loans are a few examples of loans where both parties have access to the loan and are held equally responsible for paying it off.

If one person fails to pay back their portion of the loan, then the other person has to take on that responsibility. If neither of you can pay the loan back, then you might need to default on that loan. Depending on your financial situation then, you and your spouse could look at debt solutions like bankruptcy.

Financial Considerations to Make as a Couple

No matter the relationship, there may come a time when both of you have to learn about each other’s financial situation and make a plan as to where you would like your life to look like some years down the road.

When it comes to your money, trust and honesty are key to making healthy financial decisions that could improve the rest of your life. If you and your partner are ready to combine your financial abilities to support the life you have, these are some considerations you and your partner should make:

Know What Each Own & Owes

Take some time to go through each other’s assets and debts. Assets can include:

  • Property
    • Cars
    • Houses
  • Financial assets
    • Cash
    • Savings accounts
    • RRSP accounts
    • TFSA accounts
    • Stocks and bonds

Some liabilities can include:

  • Car payments
  • Mortgages
  • Student loan payments
  • Credit card debt
  • Lines of credit

Understand Your Income

It’s also important to know how much income both of you bring in. You may want to look at your annual income, or you could choose to look at your monthly income depending on what’s best for you.

Knowing your income is crucial for setting a monthly budget and tackling some of the debts you both have accumulated.

Learn About Each Other’s Financial Goals

Everybody is a little different when it comes to how they want to spend their money throughout their life. You and your partner should understand what goals you both may have and how you both plan to achieve them. Some of these goals can include:

  • Buying a house
  • Saving for retirement
  • Taking vacations
  • Buying a car
  • Having children
  • Paying off debt

Share the Responsibilities

At the end of the day, taking care of you and your partner’s financial obligations is a team effort. Not everything needs to split down the middle, but you should have an idea of how each person’s financial capabilities can support or even improve your lifestyle.

Financial obligations can change throughout your life, so planning ahead can help make sure you never need to face situations like bankruptcy.

Wife supporting husband in bankruptcy process while signing papers

Do You or Your Spouse Need Financial Help?

Whether you or your spouse is considering filing for bankruptcy, it’s important to know your options with the help of our trustees at A.C. Waring & Associates. Give our team a call today and let us help you take control of your money.

Written by Arthur Waring

Arthur earned his Bachelor of Arts from the University of Western Ontario before earning a Bachelor of Commerce from the University of Windsor. During university, he also participated in a French immersion program in Trois Pistol, Quebec, and has been employed for several national firms over the years.

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