will a consumer proposal affect my spouse

How Will Filing a Consumer Proposal Affect My Spouse?

Are you struggling to pay your bills? Are you and your spouse constantly fighting about how to manage your debt? Is it becoming too much to handle? If you are nodding your head and answering yes, It may be time to speak to a Licensed Insolvency Trustee (LIT) about your debt management options. 

A Consumer Proposal is one solution that can be used to reduce your debt. It is a legally binding process administered by a LIT. Your LIT will work with you to develop a proposal to present to your creditors in which you offer to pay a certain percentage of what you owe. A Consumer Proposal can be a good alternative to Bankruptcy. This is because it is the only other debt solution that protects against creditor enforcement actions like wage garnishment or a frozen bank account. 

Filing a Consumer Proposal and Your Spouse

When deciding how to deal with your debt you may ask the question: How will a Consumer Proposal affect my spouse? 

First, understand that just because you are married or in a common-law relationship, your spouse is not automatically responsible for your debts or financial obligations. If you file a Consumer Proposal, it will not affect your spouse’s credit report. The only time they would be obligated to pay your debts is when you have joint debt. If the debt is only in your name, then your spouse will not be affected by the Consumer Proposal. 

What is Joint Debt?

Joint debt is when both you and your spouse borrow money together. That is, when you both sign a legal document agreeing to share financial responsibility and liability for the debt. 

If your spouse acts as a co-signer or guarantor, the debt is considered joint debt and they are liable for the full outstanding credit card or loan balance. This means that the financial institution may call upon your spouse personally for payment of the full outstanding balance and report the account issues to the credit bureaus. Reporting the issue will have a negative impact on your spouse’s credit rating.  

Types of joint debt

While almost any kind of debt can be a joint debt some common examples include:

  • Mortgages
  • Credit cards
  • Loans
  • Lines of credit
  • Bank accounts
  • Bank overdrafts
  • Car loan 

How to deal with joint debt

If you were to file a Consumer Proposal, a joint creditor can pursue collection activity on your spouse. It is always recommended that you make sure your spouse has no responsibility for your debts by calling your financial institution before filing your Consumer Proposal. When co-signing on a credit card, loan, or mortgage, you should understand what you are responsible for. 

Joint Consumer Proposal versus an individual Consumer Proposal 

If you and your spouse both have a large amount of personal debt and joint debts, it might make sense for you to file a joint Consumer Proposal. By filing a joint Consumer Proposal, you may be able to save some effort and money by filing together. Once you have paid the agreed-upon amount to your creditors, you will both be discharged from the balance of your debts. 

However, be aware that filing a joint proposal will affect both of your credit reports. The credit bureau will report your proposal as an R7 rating which will remain on your credit report for three years once your proposal has been completed. This can make it difficult for either of you to borrow money until the proposal has been cleared from your credit reports. 

If your spouse isn’t carrying much debt other than your joint obligations, you can file for a Consumer Proposal alone. Then, they will only be responsible for paying back a percentage of the total joint debt. In this scenario, you reduce your overall debt owed and your spouse won’t necessarily take a hit to their credit.

What happens to joint debt if you are separated or divorced? 

If you and your spouse are separated or divorced but you still hold joint debt, creditors can go after your ex for debt repayment when you file a Consumer Proposal. Joint debt doesn’t go away just because you are no longer together. Your creditors don’t care if you are a couple or separated, you are still obligated to pay your debts. 

Speak to a LIT Today to Discuss How Filing a Consumer Proposal May Affect Your Spouse 

If you are questioning how a Consumer Proposal will affect your spouse or you’re unsure how to deal with your joint debt, reach out to a Licensed Insolvency Trustee. A LIT is the only professional who can act as a Consumer Proposal administrator. 

By speaking with a LIT you can discuss your specific situation and work together to determine which debt solution will work best for you and your spouse. The burden of debt can take its toll on even the strongest relationship. If you and your partner are struggling with debt, reach out for help. You don’t have to go through this alone. 

We hope the information discussed has been informative. We at Allan Marshall & Associates Inc. are always available free of charge to discuss any matters dealing with credit and debt.  Send us a message or don’t hesitate to call us at 1-888-371-8900.

About Author

Rob Johnson BBA, CPA, C.I.R.P, L.I.T

Rob has been in the insolvency field since 2010. He graduated with a BBA from the University of New Brunswick. He then continued his education becoming a Chartered Accountant, a Chartered Insolvency and Restructuring Professional, and a licensed Insolvency Trustee. Rob is active in both the Consumer Insolvency and Corporate Restructuring areas of the practice. Rob was also Vice President with Ernst & Young Inc.’s Corporate Restructuring group. Rob has served for many years in leadership roles throughout New Brunswick and continues to serve on many boards within his community.