If you and your spouse constantly struggle to manage your debt, consider discussing debt management options available to you with a Licensed Insolvency Trustee (LIT). In this article, we highlight the Consumer Proposal, one of the debt management options, and the circumstances under which this option can affect your partner.
What is a Consumer Proposal?
It is a legally binding agreement for reducing your debt and is administered by a LIT. Your LIT helps you to develop and present a Consumer Proposal to your creditors. In such a proposal, you commit to paying some percentage of the amount you owe the creditor. Compared to Bankruptcy, a Consumer Proposal is a better option for debt management because it protects you from creditor enforcement actions such as a bank freeze or wage garnishment.
How does a consumer proposal affect my partner?
When considering a Consumer Proposal as a debt management option, knowing when and how it can affect your partner is essential. It is not automatic that your partner will be responsible for your debts or financial obligations simply because you are married or in a common-law relationship. Except when you have a joint debt, your partner’s credit report will not be affected if you file a Consumer Proposal, and they will not be obligated to pay the debt that is only in your name.
What does it mean to have a joint debt?
You have a joint debt when:
- You and your partner borrow money together and sign legal documents committing to share the financial obligation and liability of the debt.
- You are your partner’s co-signer or guarantor. In this case, you are also liable for the full outstanding credit card or loan balance.
When you have a joint debt with your partner, the creditor may ask you to pay the total or outstanding balance and list you with the credit bureaus, negatively impacting your credit rating.
Common types of joint debts
Almost all kinds of debt can be joint debt. However, the most common types of joint debt include:
Dealing with a joint debt
Because your creditor can pursue your partner for debt collection if you were to file a Consumer Proposal in Kitchener, here is how to deal with a joint debt:
- Call your creditor before you file a Consumer Proposal, and inform them that your partner has no responsibility for your debt.
- Always understand what you are responsible for before co-signing a credit card, loan, or mortgage.
Individual Vs Joint Consumer Proposals
If other than your joint debt, you do not carry much debt as your partner, you can file for a Consumer Proposal alone. In that case, you will only be responsible for paying back a portion of the total joint debt. Filing for individual Consumer Proposals helps you reduce your overall debt owed, and your credit score will not be adversely affected.
However, if you and your partner have larger individual and joint debts, it would make sense to file a joint Consumer Proposal because:
- It takes little effort and saves you money
- You will both be discharged from the balance of your debts after you pay the agreed-upon amount
A joint consumer report will, however, impact both your credit ratings. Your proposal will be reported as an R7 rating and will remain for three years from the date you completed your proposal. Until a joint proposal is cleared from your credit report, it can be difficult for you and your partner to borrow money.
Can a joint debt affect my partner if we are separated?
If after you and your partner separate, you still hold a joint debt, and you file for a Consumer Proposal, your creditor can pursue your ex. Just because you are no longer living together, your debt obligations do not go away.
Reach out to a LIT today to know how filing a consumer proposal may affect your partner.
A Licensed Insolvency Trustee (LIT) is the only qualified person who can act as a Consumer Proposal administrator. Discussing with a LIT helps you understand how filing a Consumer Proposal can affect your partner. Speaking to a trustee about your specific debt situation helps determine the best debt management option for you and your partner. Do not struggle through debt alone, as this can affect your relationship. If you and your spouse find yourselves struggling with debt, reach out for help. At Dana Trustee, we provide free consultation on credit and debt matters. Do not hesitate to reach out to us.