What happens when the amount due is not determined yet? Or when the date for payment is in the future? If a debt isn’t due yet, or the amount owing isn’t set, can this debt be included in a bankruptcy or consumer proposal?

To understand this, I’ll explain the concepts of contingent debt, disputed debt, unliquidated damages and future debts.

When is a debt a claim in bankruptcy law?

First, let us take a quick look at the purpose of the Bankruptcy and Insolvency Act (BIA). The purpose of bankruptcy is to allow an honest but unfortunate debtor a fresh start.  That means, once discharged, a bankrupt should be free of all claims owing by them when they file bankruptcy.

The BIA defines claims or debts provable in bankruptcy.

Section 121 (1) says, “All debts and liabilities, present or future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt or to which the bankrupt may become subject before the bankrupt’s discharge by reason of any obligation incurred before the day on which the bankrupt becomes bankrupt.

The key here is that the debt can have a future component, but you must have somehow become obligated to pay that debt before the day you file insolvency.

You are not necessarily free of all claims against you once you file a bankruptcy or consumer proposal. Some debts survive the process. Amounts owing to a secured creditor where you are not surrendering the asset as part of the proceedings remains payable after you file. A few unsecured debts are not eligible for discharge under the BIA, such as fines, support payments, and debt due to fraud, to name a few.

However, subject to the above exceptions, as long as there was a legal obligation that created the potential debt as of the date of bankruptcy, it is eliminated through bankruptcy.

Sometimes this time cut-off is easy to understand. For example, if you didn’t pay your gym membership for three months before filing for bankruptcy, you can include that unpaid debt in your bankruptcy. If you keep your gym membership and miss your payment after you file, you’re still going to have to catch up on that bill. 

Other times, the concept of when, or if, a debt is created can be a little more complicated.

Unliquidated debts

An unliquidated debt is a debt where the amount owing has not been calculated or established.

An example of this would be a lawsuit that has started, but the outcome has not been determined. You may be in the middle of the court case, but there is no settlement, nor has the court ruled. In this case, there may be a debt, but we don’t know if or how much.

Another example is when you file an HST or income tax return, but your return has not been assessed by the Canada Revenue Agency (CRA). There is an amount owing calculated on the return you filed, but the CRA has not yet accepted or confirmed that this is the correct amount.

The Licensed Insolvency Trustee (LIT) is responsible for determining if an unliquidated claim is provable (allowed) in the bankruptcy. The LIT determines this based on the facts at hand and may ask for an opinion from outside legal counsel. An unliquidated debt cannot be too speculative or remote; it must be sufficiently certain for it to be owed.

Contingent debts

A contingent claim may or may not become a debt as it is dependent on uncertain future events.

For example, if you have guaranteed a loan or co-signed a loan for which the other person is paying, this is a contingent debt. The creditors are not looking to you to make payments until the other person defaults on the loan. The other person may default after you file for bankruptcy.

If a contingent debt were to survive bankruptcy, it would not allow you to be free of the claims against you. It would not allow a fresh start. Therefore, the creditor is listed on your Statement of Affairs as a contingent debt. The creditor will know that you have filed for bankruptcy and that they can no longer look to you for payment. A creditor may file a proof of claim for a contingent debt, and the LIT is responsible for determining if it is a provable claim. As with unliquidated claims, the amount owing cannot be too speculative or remote.

Future debts

Future debts are debts you owe but are not payable until a future time.

An example of a future debt is those ‘don’t pay a cent event’ furniture purchases. You buy some furniture now, but the debt is not payable until next year. But in reality, even though you don’t have to make a payment for 12 months, the obligation to pay was created when you bought the furniture. Let’s say, for example, Covid-19 hits and your life changes before the date the loan comes due. You are no longer able to pay the loan along with some other debts you have. If you file for bankruptcy before this debt is due, this future debt is still eliminated by bankruptcy.

Disputed debts

Another type of debt that is not necessarily due is a disputed debt. A disputed debt is an obligation that you do not believe you owe, for example, a fraudulent charge on your credit card, a gym membership fee charged after you have cancelled your membership or a lawsuit you are fighting.

Disputed debts can be listed on your Statement of Affairs so that the creditor is aware of your bankruptcy, but it will be marked as disputed. A disputed debt originating before your date of bankruptcy is dischargeable by filing bankruptcy. Whether the disputed creditor is entitled to any bankruptcy estate proceeds depends on whether they can prove the claim to the Licensed Insolvency Trustee. You will want to provide your LIT proof that you are not responsible for this debt so they can review the validity of the disputed creditor’s proof of claim.

If you are unsure about your debts, how to deal with them and how they will be treated in a bankruptcy or consumer proposal, contact us to talk with a Licensed Insolvency Trustee. We are happy to help you.

The post Can You File Bankruptcy on Debts Not Due? appeared first on Hoyes, Michalos & Associates Inc..

Do I have enough debt to file bankruptcy?

While the minimum debt requirement for a bankruptcy filing is $1,000, very few people file bankruptcy with low debt levels. Our annual bankruptcy study shows that less than 4% of all bankruptcies involve debts of less than $10,000.

Whether you should file for a small amount of debt is a matter of weighing the cost of bankruptcy against the monthly debt payments required to pay off your debts on your own. The bankruptcy process requires you to make a basic monthly payment to cover the cost of administration. The minimum monthly cost is typically $250 per month for 9 months or $2,250. You need to compare this cost, along with the short-term impact on your credit, against the benefits of eliminating small debt balances. In most cases, bankruptcy does not make sense unless you owe more than $10,000 in credit card and other unsecured debts.

It is not the total amount of debt that triggers bankruptcy. Instead it is the inability to keep up with your regular monthly debt payments. If you are behind on your payments, in default on your debt, have debts sent to collections, or are only making minimum payments each month and see no hope in repaying your total debt, then filing for bankruptcy may be an option for you.

If your debts, and your income, are high you may also want to consider a consumer proposal. A consumer proposal is a way to avoid filing bankruptcy by making a deal with your creditors to repay a portion of what you owe. A consumer proposal has the same lower debt limit as a bankruptcy, however there is also an upper debt limit in a consumer proposal of $250,000 in unsecured debts.

If you are struggling with debt repayment, feel free to contact a local licensed insolvency trustee at Hoyes, Michalos. We’ll review your situation, for free, and help you decide if filing bankruptcy is the right solution.

The post How Much Debt Does it Take to File Bankruptcy in Canada? appeared first on Hoyes, Michalos & Associates Inc..

What is a joint debt and how does it work?

When you borrow money with someone else, like your spouse, you are entering into a joint debt.

Generally, joint debts can occur when:

• Both parties apply for and sign a loan agreement as co-borrowers
• One party co-signs or guarantees payment of another person’s debt

How joint debts work:

With a joint debt, you’ve entered into a contract, therefore you and your co-signer share equal responsibility for all payments.  Neither of you can opt out of responsibility for repayment of a joint loan.  It’s important to understand that debt loads can’t be split 50/50. Both you and the co-signer are responsible for 100% of a joint debt. This is referred to as ‘joint and several’ liability.  That means that if one party fails to meet their obligations, the lender will look to the other party for payment of the full amount of the debt.

Before co-signing or co-borrowing on a loan, make sure that you and your partner are on the same page and understand all the risks that come with sharing debt. When entering into this agreement, remember that you will have to pay the loan back if your partner cannot. The same conditions apply if you’ve co-signed or guaranteed someone else’s old debt. What’s more, both of your credit scores become vulnerable in the event of default, as you are both considered borrowers in the eyes of the lender and the credit bureaus.

What types of debts can be joint debts?

Almost any debt can be a joint debt including mortgages, car loans, lines of credit and credit cards.

Joint credit cards

 Credit cards can be a bit more complicated to determine if both spouses are responsible for payment.

With a joint credit card, both parties have signed the credit card agreement and are equally responsible for the entire amount of debt incurred, not just half.

On the other hand, a supplementary credit card is an additional card for your spouse, adult child, or anyone else you allow to have added onto the card. The responsibility for the debt on a supplementary card often lies with the primary cardholder only. For example, you may have a personal credit card and allow a supplementary card for your spouse. Your spouse can make purchases on the account, but you would be responsible for all charges incurred on the card.

Note: There are specific terms and conditions with each credit card. Some credit cards will make the primary cardholder liable for all charges but also hold the supplementary cardholder liable. It is critical to read the terms of your credit card agreement carefully. Learn more about how responsibility is divided with supplementary cards.

Joint bank accounts and overdrafts

Many couples have a joint bank account. If this account has overdraft protection then, when this account is overdrawn, this becomes a joint debt. An overdraft is a borrowing facility like any other type of unsecured credit.

Co-signed and joint secured debts

Another common joint debt can be a mortgage secured by your family home. A car loan is sometimes also a secured debt when the lender takes the car as collateral for the loan. Both are common co-signed debts. Secured debts are not affected directly in a bankruptcy or consumer proposal if the payments on the secured debt remain current. If one spouse fails to make their payments, the lender may choose to seize the asset and look to the co-signer for any shortfall. If you have joint secured debts at the time of bankruptcy and want to keep those assets, it is important to keep up with all the monthly payments.

Am I responsible for my spouse’s debt?

A common misconception is that once you’re married, you’re automatically responsible for your spouse’s debt. This is not true. You are only liable for the debts on which you’ve co-signed because the law treats financial contracts as distinct from marriage. Only the spouse that signed for and incurred the debt is legally responsible to repay it. 

If you had no debt before entering a marriage, but your spouse did, you should think carefully before agreeing to assume legal liability for your spouse’s debts or applying for a joint consolidation loan. Once you co-sign or guarantee payment, the bank or creditor will look to you for payment of the full amount of the loan if your spouse defaults. You can work on a repayment plan together without necessarily assuming legal liability for your spouse’s debts. Another advantage of keeping pre-marital debts separate legally is that you can preserve one spouse’s credit rating in the event one spouse defaults on the loan and finds they cannot repay their debt in full.

What happens to joint debt if my partner files for bankruptcy?

If you and your spouse have a joint debt for which you’ve co-signed, and your spouse files for bankruptcy or a consumer proposal, you’re still responsible for that debt. At that time, your spouse can no longer make payments towards a joint debt and creditors can pursue you for full payment.

Do both spouses have to file insolvency to deal with joint debts?

The answer is no, not necessarily.  If one spouse has significant debts of their own plus some joint debts they may need to file a bankruptcy or proposal to deal with those debts.  If the second spouse is still solvent (can repay their financial obligations) there is no need for that spouse to file, as they can continue to service their joint debt.

However, if you are both overwhelmed by debt, joint or your own, it may be best for both spouses to consider a bankruptcy or proposal.  You can consider filing individually or filing a joint insolvency proceeding. Filing a joint consumer proposal, for example, can reduce the costs overall since there is only one file to administer.  A Licensed Insolvency Trustee can help you understand how each spouse should proceed if you have joint debt and are unable to make payments towards it.

What happens to joint debt in a divorce?

If you are facing divorce, your joint debt won’t be split in two by the creditor or lender. You and your spouse will continue to maintain equal responsibility of ensuring that all debt owed is repaid, even after divorce.

Once your joint debt is paid off though, remember to remove your name from it so you’re not liable for any future debt incurred by your ex-spouse.

Separation Agreements

Even if you and your former partner signed a separation agreement and your ex-partner agreed to pay the joint credit card, you’re still liable for the entirety of the debt if they fail to make their agreed upon payments. Separation agreements are between you and your spouse, not you and the bank. Any missed or late payments will affect both of your legal obligations and credit scores, regardless of who was ‘supposed’ to pay in the separation agreement.

In the case of a separation or divorce, talk to your bank before you sign a separation agreement about the possibility of getting two separate loans in each of your names to replace a joint debt.

You might also be surprised to learn that you and your ex-partner can file a joint consumer proposal or bankruptcy, if needed, even though you’re no longer together.

We understand that joint debts can be confusing. If you have any questions or are unsure about how to manage debts on which you’ve co-signed, don’t wait. Speak to a Licensed Insolvency Trustee who can help you find the best debt relief option for you and your significant other. The sooner you seek help, the more options you may have available to you.

The post A Complete Guide To Joint Debts appeared first on Hoyes, Michalos & Associates Inc..

Here’s how it works:

If you own a home, prior to filing a consumer proposal or personal bankruptcy with Hoyes, Michalos & Associates, we will request that you obtain an appraisal on your home, and a recent mortgage statement so that we can determine whether or not you have equity in your home. (Equity is the difference between what your home is worth, and what is owing on the mortgage). In a bankruptcy, if the equity in your home exceeds $10,000, you are required to either pay an amount equal to the equity to keep your home, or surrender your house to the trustee. If you have equity over $10,000 and you want to keep your home, a consumer proposal is often the best option, since the value of your home can be incorporated into your proposal payments, which can be extended over up to five years to make the monthly payments manageable.

For more information, please see our article on What Happens to My House if I File Bankruptcy?

Two further points:

First, many mortgage lenders will charge you a fee when you file a consumer proposal or go bankrupt. They charge a fee for processing a claim with the trustee. So, even though you will be keeping your house and making payments, the mortgage company may charge a fee of between $150 and $400 to process the paperwork. Please contact us and we can advise you on whether or not you are likely to be charged a fee by your mortgage company.

Second, when lenders tighten credit due to expectations that the economy or housing prices will not go in their favour, some lenders make it difficult to renew mortgages. Some lenders now have a policy that if you file a consumer proposal or bankruptcy they will allow you to keep the mortgage until it matures, and then they will require you to find a new lender. In fact, there are even some lenders who are advising their clients that they are getting out of the mortgage business, and will not renew any mortgages, even if you are not filing a bankruptcy or proposal

How can your protect yourself? Again, we recommend you contact one of our professionals for a free initial consultation, so that we can review your options and help you find solutions. Some people may be able to find a new lender. Others may decide that they will sell their house before the bank can foreclose or refuse to renew a mortgage.

There are options, so be proactive and start exploring your debt relief options today.

The post Mortgages and Bankruptcy in Ontario: What You Need to Know appeared first on Hoyes, Michalos & Associates Inc..

There is no sense in continuing to struggling with minimum payments because you want to keep the convenience of a credit card. It is possible to eliminate credit card debt by filing a bankruptcy or consumer proposal.

But what happens if you have a credit card that has no balance owing?  Are you still required to surrender that card?

The short answer is yes.

Section 158(a.1) of the Bankruptcy & Insolvency Act states that a bankrupt shall:

deliver to the trustee, for cancellation, all credit cards issued to and in the possession or control of the bankrupt

The law is clear.  You are required to surrender your credit cards, whether or not there is a balance owing.

Why does this law exist?  Should it not be up to the credit card issuer to decide whether or not you can keep a credit card with a zero balance owing at the time of your bankruptcy?

Yes, it should be their decision, and that’s the point.  The trustee is required to notify all creditors of the bankruptcy, so if the zero balance credit card is not listed, the lender may not immediately be notified of the bankruptcy.  As a result, if you use your credit card, they could end up lending to someone who is bankrupt without even knowing it.  That’s not fair, because they were not given an opportunity to make their own decision.

But what if you need a credit card while you are bankrupt, for travel, or work purposes, or to make on-line purchases, or to book a hotel room? Doug & Ted talk about how you can manage without a credit card during bankruptcy:

Read Transcript

You have two choices:

First, you could ask your spouse, a family member or a friend to get a credit card with a small credit limit and add you as a supplementary borrower.  The primary borrower is responsible for the card, so you want to be sure the card is paid in full each month.

Second, you could get a secured credit card or a prepaid credit card to use in emergencies.  Some lenders require you to be discharged from bankruptcy before they will lend, but in some cases it is an option.

Ultimately, there are no secrets.  Even if you “forget” to disclose a zero balance credit card to your trustee, the credit card probably appears on your credit report, so if any of the other creditors look they will probably see the card and start asking questions, so  the best course of action is to surrender all credit cards.

If you are struggling with debt, contact us today for a free consultation. You don’t have to decide right away but getting a debt assessment will help you find options that can give you a fresh financial start.

The post Do I Have To Surrender My Credit Card in Bankruptcy? appeared first on Hoyes, Michalos & Associates Inc..

What are joint debts?

Joint debts are debts that you sign documents with legally with another person.  Since you co-signed the documents, both you and the co-signer are jointly liable for repayment of the loan. You cannot contract out of a joint debt without the permission of the creditor.  This is important since that means you can’t agree to split the debt 50/50 in a separation or divorce. This is one of the risks of considering a joint consolidation loan with your spouse.

Common examples of joint debts include lines of credit, mortgages and credit cards.

 Joint credit cards can come in two forms, both a joint card and a supplementary card.

• A Joint Credit Card is where individuals have signed for the card and are responsible for the whole amount of the debt (not just half of it). The liability for joint credit cards in a divorce can prove to be a problem if not handled correctly during the separation.
• A Supplementary Credit Card is an additional credit card for your spouse, adult child or anyone that you wish to give the card to. Liability for supplementary cards depends on the clauses in the primary credit card contract agreement. In most cases the supplemental card holder has no responsibility for the debt because they did not sign the paperwork. However this is not always the case for all credit cards. They may assume liability for all or part of the debt by using the supplementary card. You should read your specific contract very carefully.

A common misunderstanding is that just because you are married, you are liable for your spouse’s debt.  This is not true. Getting married does not make you automatically responsible for your spouse’s debt. If you did not sign for the debt, you are not legally responsible for it. If your spouse files bankruptcy or a consumer proposal, and you are not considered a joint debtor, their bankruptcy or proposal will not affect you.

How will filing bankruptcy or a consumer proposal affect my co-signer?

A co-signer is generally needed because an individual poses a lending risk and the creditor feels that by having a guarantor on the debt, they have ensured that two people are now responsible for repayment of that debt.

If you file bankruptcy, your creditors can, and likely will, pursue your co-signer for collection. Your bankruptcy will not, however, affect your that person’s credit report as long as they continue to make payments on the co-signed debt.

What is a joint consumer proposal or bankruptcy?

If both spouses share substantially the same debts as joint debtors they have two options; they can each file a bankruptcy or proposal or they can file a joint bankruptcy or  joint consumer proposal.

Filing jointly is a process that covers both individuals at a lower cost than filing separate insolvencies. 

Your trustee would look at each of you individually, your incomes, your debts and your situation to decide if a joint or individual filing is possible and makes most sense.

It is even possible, and not uncommon, for divorced or separated spouses to file jointly to deal with debts from their previous marriage.

If you’re unsure whether your debts are joint or you’re wondering how a joint bankruptcy or consumer proposal process works, contact a Licensed Insolvency to review your situation and discuss all of your options. If in Ontario, contact Hoyes, Michalos for a free no-obligation consultation with one our local licensed bankruptcy trustees.

FULL TRANSCRIPT show #39 with Jason Quinney

For more information about joint debts, co-signers and how to deal with joint debts during a separation or divorce, listen to our podcast or read the full transcript below.

Doug Hoyes: Welcome to Debt Free in 30 where every week we take 30 minutes and talk to industry experts about debt, money and personal finance. I’m Doug Hoyes. It’s the end of the month so that means it’s time for another Frequently Asked Questions show here on Debt Free in 30.

Every day we gets lots of phone calls to our 310PLAN help line and dozens of people every week email the Hoyes Michalos team with questions. I keep track of those questions and we answer the most common questions on our frequently asked questions shows.

We get a lot of questions about what will happen to my spouse if I have debts and what happens to co-signers? So, today we’re going to answer all of your frequently asked questions about spouses, co-signers, supplementary card holders and joint debts. Before we get to those questions let me tell you some facts.

If you’re a regular listener to this show you’ll know that every two years we do a detailed study of everyone who files a bankruptcy or consumer proposal with Hoyes Michalos. We call it our Joe Debtor study and we talked about it back on show #36 which aired on May the 9th. You can go to Joedebtor.ca to read all about it. Here’s some interesting facts from that study. Of all the people who go bankrupt or file a consumer proposal, 40% are married or common law and 28% are separated or divorced. That means that more than two thirds of everyone we help either has a spouse or did have a spouse and it’s very likely that they had debts together. What do I mean by debts together? To answer that question and lots of other questions about whether or not your spouse is responsible for your debts, I’m joined today by Jason Quinney, a trustee who works in the Hoyes Michalos offices in Barrie, Vaughn and our Jane and Finch office in Toronto. Jason, welcome the show, how are you doing today?

Jason Quinney: Good, Doug.

Doug Hoyes: So, let’s start with that question, then. What does it mean to have debts together? So, explain that to me.

Jason Quinney: Well, having debts together, I mean a lot of couples when they go get loans they have to get a co-signer, so they co-sign debts together.

Doug Hoyes: So, the key point there is, we have both signed for the debt.

Jason Quinney: Yes.

Doug Hoyes: So give me some examples of where people would both be signing for the same debt.

Jason Quinney: Well, they could go into the bank for a line of credit. Sometimes you need a co-signer so they would both sign together for that line of credit.

Doug Hoyes: Why is the bank asking for a co-signer? What’s the typical reason that two people would be signing?

Jason Quinney: Usually it’s so they could have two people to collect from.

Doug Hoyes: Okay, so the bank wants their butt covered. It’s a lot easier to get money from one person then, or from two people as opposed to one.

Jason Quinney: Yep.

Doug Hoyes: So, a line of credit would be an obvious one. What types of debts are often joint where two people are signing for them?

Jason Quinney: Mortgages.

Doug Hoyes: That would be anther common one.

Jason Quinney: Yeah.

Doug Hoyes: So, what about credit cards. So, there are two different ways a credit card can have two people associated with it. You can have a joint credit card or you can have a supplementary credit card. So, let’s start with the legal concept, what’s the difference between, you know, legally, between a joint credit card and a supplementary credit card?

Jason Quinney: Well, a joint credit card would be a co-signed. So, both of you signed for it, where a supplementary credit card is when you get a credit card and then they ask you if you want another credit card for your spouse.

Doug Hoyes: And that’s a pretty common thing, you fill out the form and you’ve already qualified so-

Jason Quinney: And they always ask you if you want a supplementary one.

Doug Hoyes: You tick the box, boom there it is. So, your spouse, if we want to use that example, and the supplementary card could be for anyone, it could be for your adult child, it could be for your mother I guess. But let’s take the simple scenario of two spouses. So, I tick the box and say yep I’d like a supplementary card for my wife. Now, she hasn’t signed for it, so is she legally responsible if that card doesn’t get paid?

Jason Quinney: Legally, no.

Doug Hoyes: Because she didn’t sign for it.

Jason Quinney: Because she didn’t sign for it.

Doug Hoyes: Okay. So, let’s talk about real life then, tell me some stories about what happens in real life with supplementary card holders.

Jason Quinney: Well, in real life they will go after the second person.

Doug Hoyes: They will go after them. And so what happens? The first person has to go bankrupt, can’t pay, then they start getting the phone calls, the letters whatever.

Jason Quinney: To go after the second person.

Doug Hoyes: So, how do I know, if I’m listening to this today and I’m going gee, oh yeah we’re behind on the credit card bill, I wonder if I’m a joint card holder or a supplementary card holder. How can I figure that out?

Jason Quinney: Well, the easiest way to figure that out would be to look at your credit card statement.

Doug Hoyes: So, if both names are on the credit card statement.

Jason Quinney: Then likely –

Doug Hoyes: Likely we’re both liable for it.

Jason Quinney: Exactly.

Doug Hoyes: So, okay if we both signed for the debt, we’re both liable, and so does that mean I’m 50% liable, my co-signer is 50% liable?

Jason Quinney: No, a lot of people think that though. A lot of people think that they would be just responsible for half of the debt. But no, they would actually be responsible for the whole amount.

Doug Hoyes: So, it’s not 50/50, it’s 100%/100%.

Jason Quinney: Yep.

Doug Hoyes: So, if my co-signer, my joint card holder doesn’t pay, the bank is coming after me for the whole shot.

Jason Quinney: Correct.

Doug Hoyes: Okay, so that’s a pretty important distinction, then. So, just to review then, a joint debt is signed by both people.

Jason Quinney: Yes.

Doug Hoyes: So, if you remember signing the loan application form or the credit card application form, you’re joint.

Jason Quinney: Yes.

Doug Hoyes: It’s pretty much that simple. If you don’t remember signing for it, legally, well, maybe you forgot, but legally if you didn’t sign for it you may not legally be responsible but practically speaking okay, well, you’ve used the card it’s not uncommon that they’re coming after you for it.

Jason Quinney: Yep.

Doug Hoyes: Okay. So, in general, is my spouse – somebody I’m married to – automatically responsible for my debts because we’re married?

Jason Quinney: No.

Doug Hoyes: Now I get people coming into my office all the time saying well, the credit card company phoned me and my spouse isn’t paying, so they said I’m married I’ve got to pay, you’re saying that’s not the case.

Jason Quinney: Correct

Doug Hoyes: Why not?

Jason Quinney: Well, because you haven’t co-signed for it, you’re not joint on the debt; they can only go after the one person.

Doug Hoyes: So, it all comes down to who signed for it.

Jason Quinney: Exactly.

Doug Hoyes: It’s as simple as that. So, if my spouse didn’t sign for it, they’re not liable.

Jason Quinney: Yes.

Doug Hoyes: Simple as that, okay. So, let’s take this a step further then, let’s say that I’m in deep financial trouble, I decide to go bankrupt, my spouse does not decide to go bankrupt.

Jason Quinney: Okay.

Doug Hoyes: How does my bankruptcy legally affect my spouse?

Jason Quinney: Legally it’s not going to affect her at all, as long as the debts not joint.

Doug Hoyes: If the debts were joint, then –

Jason Quinney: Then the creditors will go after her, will go after the spouse.

Doug Hoyes: For the full amount.

Jason Quinney: For the full amount.

Doug Hoyes: So, if my spouse, if I’m considering bankruptcy or I guess a consumer proposal would be exactly the same and I’m trying to figure out the impact on my spouse, did they co-sign? We keep coming back to that same point. Because it’s like you said earlier, it’s a very common misconception oh well, we’re married I guess I’m on the hook for it. You know all the money goes into the same bank account, we pay all the debts together, legally that’s not the case. So, okay, legally if I go bankrupt it doesn’t impact my spouse. What about in real life?

Jason Quinney: In real life it’s going to affect. I mean the bankrupt isn’t going to be a very good co-signer. And so if you go and apply for a loan or a line of credit or a mortgage, it may be difficult.

Doug Hoyes: So, my bankruptcy finishes, we go off to the bank to buy a house, the bank’s going to say, oh you were bankrupt last year, much more difficult to get a mortgage, obviously.

Jason Quinney: Exactly, generally they’re going to want you to wait two years after your bankruptcy’s finished.

Doug Hoyes: In order to be able to get a decent rate.

Jason Quinney: Yes.

Doug Hoyes: So, my spouse is disadvantaged in a bankruptcy because I’m a lousy co-signer in the future.

Jason Quinney: Yes.

Doug Hoyes: I guess the flip side of that though is, I got rid of my debt.

Jason Quinney: Yep.

Doug Hoyes: So, there’s pluses and minuses, I guess you got to look at the big picture. Explain to me in a bankruptcy, and again we’re trying to figure out how a bankruptcy impacts on a spouse, how does surplus income factor into this?

Jason Quinney: Well, surplus income in a bankruptcy situation you have to look at both of the spouse’s income. Okay, so in a bankruptcy situation the spouse could be affected.

Doug Hoyes: Okay, so when you go bankrupt, so again let’s take the case of just the husband is going bankrupt, the wife isn’t.

Jason Quinney: Correct.

Doug Hoyes: Every month you have to prove what your family income is.

Jason Quinney: Yes.

Doug Hoyes: How does that work in practice, how do you do that?

Jason Quinney: Well, we would get the bankrupt to fill out a form, an income and expense statement and they would send that in with proof of their income.

Doug Hoyes: So, their pay stubs.

Jason Quinney: Pay stubs or a bank statement.

Doug Hoyes: And so it would be the pay stubs for both the husband and the wife, even though the wife isn’t bankrupt.

Jason Quinney: Yes.

Doug Hoyes: And the more your family makes, the more you have to pay in a bankruptcy.

Jason Quinney: Exactly.

Doug Hoyes: And we won’t go through all the real specific numbers now but in real general terms a family of two, so let’s say it’s just a husband and a wife, they’re allowed to make around –

Jason Quinney: $2,562 I think it is now.

Doug Hoyes: So, and that’s the number for 2015. So, if you’re listening to this in the future, the number might be slightly higher. But they’re allowed to make let’s say around $2,500, if their income is a lot higher than that because the non-bankrupt spouse has income, that potentially means the bankrupt spouse has to pay a little bit more.

Jason Quinney: Yes.

Doug Hoyes: But they don’t have to pay as much as if they were both bankrupt.

Jason Quinney: No.

Doug Hoyes: So, we factor out the non- bankrupt spouses –

Jason Quinney: Exactly, you use the bankrupt’s percentage of the income.

Doug Hoyes: So, if the penalty calculated, let’s say the family is $2,000 over the limit, if the husband earns all the income and the wife earns nothing, then the husband is paying the penalty on the $2,000.

Jason Quinney: Exactly, yeah.

Doug Hoyes: And the penalty is –

Jason Quinney: 50%.

Doug Hoyes: 50% so a $1,000. However, if both spouses have an equal income, then they’re $2,000 over the limit, then how much is the bankrupt husband going to have to pay?

Jason Quinney: Well, we would take out the 50% of the spouse’s income. And then they would have to pay 50% of that. So $500.

Doug Hoyes: So, $500.

Jason Quinney: Yep.

Doug Hoyes: Okay. So, the spouse’s income does matter in a bankruptcy but not as much as the income of the bankrupt.

Jason Quinney: Exactly.

Doug Hoyes: Okay, so I guess the answer to the question then, we’re going to take a quick break here and come back, but in a bankruptcy, the non-bankrupt spouse isn’t directly affected. But they are indirectly affected because the bankrupt might have to pay more, might have to pay less, it all depends. And they won’t be a great co-signer in the future.

Great, thanks Jason. We’re going to take a quick break and we’re going to come back and answer more questions about joint debts and spouses and how that all works when you’re in financial difficulty. You’re listening to Debt Free in 30.

Announcer:            You’re listening to Debt Free in 30. Here’s your host Doug Hoyes.

Doug Hoyes: We’re back on Debt Free in 30. I’m Doug Hoyes and I’m joined today by Jason Quinney who is a Hoyes Michalos trustee. He works in our offices in Barrie, Vaughn and at our Jane and Finch office in the north end of Toronto. Today we’re talking about joint debts, spouses, what happens, who’s liable for what. And what we talked about in the first segment, Jason, was what really matters is who signed for it.

Jason Quinney: Correct.

Doug Hoyes: So, if both people signed for it, both people are liable for it.

Jason Quinney: Yes.

Doug Hoyes: And it doesn’t matter if you’re married or not when it comes to deciding who’s liable for something. It’s all who signed for it, that’s what matters. So, we talked about how a bankruptcy impacts a spouse. If I go bankrupt and my spouse doesn’t. And Jason you said legally, it has no impact on them but it could have repercussions down the road if they’re trying to jointly co-sign for a mortgage or something. So, does my bankruptcy appear on my spouse’s credit report?

Jason Quinney: No.

Doug Hoyes: So, there’s no notation whatsoever.

Jason Quinney: No.

Doug Hoyes: And the only impact then on my spouse’s credit would be in the example of a joint debt again.

Jason Quinney: Correct.

Doug Hoyes: So, if we’re both signed on the debt, I don’t pay because I went bankrupt, my spouse now is on the hook.

Jason Quinney: Yes.

Doug Hoyes: So, what happens if I go bankrupt and we’ve got a $5,000 credit card together? And my spouse says well, okay I’m not going to go bankrupt for $5,000. If they continue to pay it will that have any negative impact on their credit report?

Jason Quinney: No, as long as they continue to pay it.

Doug Hoyes: That’s the key.

Jason Quinney: That’s the key, yep.

Doug Hoyes: So as long as – so, even though I’m bankrupt, that non- bankrupt spouse can keep paying. It’s not a big deal.

Jason Quinney: Yes.

Doug Hoyes: So, what about then with – let’s make sure we’ve clarified that then – so, let’s say my parents co-signed a loan I got. I go bankrupt, what happens to my parents?

Jason Quinney: They will go after your parents for the loan.

Doug Hoyes: And so what advice would you give my parents then? What are their choices?

Jason Quinney: Their choices would be to pay it.

Doug Hoyes: And if they’re not able to pay it, then they –

Jason Quinney: Well, it depends. I mean the parents they could be elderly so they could be creditor proof. So, they may not have to pay it, if they don’t have any assets.

Doug Hoyes: So, just explain what you mean by creditor proof? What are you talking about there?

Jason Quinney: If somebody’s not working. So, if somebody’s elderly and they’re on a pension, they don’t have any assets, they could be considered creditor proof or judgment proof where they can’t get – a creditors not going to be able to sue them and get a judgment against them.

Doug Hoyes: So, and the key is being able to get something from them, I guess.

Jason Quinney: Yes.

Doug Hoyes: So, you can sue anybody for anything.

Jason Quinney: Yep.

Doug Hoyes: The sky is blue I’m going to sue you for it.

Jason Quinney: Yep. Typically judges aren’t going to grant a garnishment against somebody’s pension.

Doug Hoyes: Because in Ontario, and the rules maybe slightly different in other parts of the country, but in Ontario, the Ontario Wages Act is pretty clear. You can only garnishee –

Jason Quinney: Income.

Doug Hoyes: Yeah, wages.

Jason Quinney: Wages, yep.

Doug Hoyes: So, if you have a pension then that can’t be garnisheed. The only exception I’ve seen would be if you haven’t paid your taxes, Revenue Canada has the ability to withhold some or all of your CPP payments.

Jason Quinney: Yes.

Doug Hoyes: Cause they’ve already got their finger in that pot. But, if you’ve got a normal company pension, you haven’t paid your credit card bill, they aren’t going to be able to, under normal circumstances, get a judgment, they can get a judgment but they won’t be able to garnishee that.

Jason Quinney: Yeah.

Doug Hoyes: So, is there any way for the bank to collect from my elderly parents who co-signed this loan before I went bankrupt? What other advice would you give them? In terms of, they’re still banking at the same bank, is that potentially a problem?

Jason Quinney: That could be a problem. If they’re still banking at the same bank where the loan is co-signed with, the bank can go into that bank account and take any money that’s in there and put it towards that loan.

Doug Hoyes: Without having to go to court.

Jason Quinney: Without having to go to court.

Doug Hoyes: Because –

Jason Quinney: Because when you open up a bank account it says in the small print that if you owe them money they can technically take the money.

Doug Hoyes: And I guess even if legally they can’t, well it’s their computer system, it’s not too hard. And so have you actually seen that happen?

Jason Quinney: Yes.

Doug Hoyes: So, if someone is listening to us today saying okay I’ve got a bunch of debts, I know that one of my debts is co-signed by my parents, what kind of – what’s the thought process then? What kind of advice do you give someone like that?

Jason Quinney: I would advise them to open up a new bank account with a different bank, with a different institution.

Doug Hoyes: Got you. So, and that way at least they don’t have to worry about something coming out of their bank account that they didn’t know.

Jason Quinney: Exactly.

Doug Hoyes: And I guess when I’m talking to someone like that I say well if your number one worry is I want to make sure that my parents are protected, then what you could do if it’s a relatively small debt, compared to all your other debts, is you could deal with your parent’s debts first.

So, okay fine I’ve got this $5,000 joint credit card that they helped me get 10 years ago and their name’s still on it, so before I go bankrupt, I’m going to help my parents get that paid down or even paid off which of course means all my other debts are going to be really old. But at least then, they are protected. If they’ve co-signed for my $50,000 student line of credit, well, I’m not going to be able to pay that off, and I guess in that case the best advice for the parents, if they actually do have some income, they do have some assets, they should probably go to the bank, get it switched over entirely into their name, set up a new loan, maybe they can get a better interest rate and deal with it that way. Okay, can I go bankrupt on my own or is it a requirement that my spouse has to go bankrupt when I go bankrupt?

Jason Quinney: No, you can go bankrupt on your own.

Doug Hoyes: And how would I decide whether I go bankrupt on my own or whether I go bankrupt with my spouse?

Jason Quinney: Well, the main thing is you got to look at the debt, so are they joint debts? Is your spouse co-signed on them? Does she have supplementary cards on them? Or you could have common creditors. Do you both have the same creditors?

Doug Hoyes: And so, if we’re both on the same debt, that would be more likely that we would both then have to come up with some form of solution.

Jason Quinney: Yes.

Doug Hoyes: And would it be two separate bankruptcies that we’d be doing or would be doing a joint bankruptcy?

Jason Quinney: No, you could do a joint bankruptcy, or a joint consumer proposal.

Doug Hoyes: And that means it’s one process covering both of us.

Jason Quinney: Yes and it would likely be cheaper.

Doug Hoyes: So, when you say cheaper, how would it be cheaper? Let’s take an example then. So, I’ve got – well, let’s take the example of a bankruptcy. I’ve got some debts, my spouse has some debts, some of them are together, some of them are not. If we both went bankrupt separately as opposed to both going with a joint bankruptcy, the cost isn’t going to be hugely different is it?

Jason Quinney: Not hugely different, but there is a difference because I would have to do two separate files. So, the two separate files, there would be cost on those two separate files.

Doug Hoyes: Because typically as a trustee, you’re going to say there’s a minimum cost, a couple of hundred bucks a month or whatever it is, so if you’re doing two files, potentially that minimum cost could double.

Jason Quinney: It’s going to be that cost times two. Exactly.

Doug Hoyes: The surplus income that we talked about earlier wouldn’t make any difference if it’s two separate bankruptcies or one bankruptcy.

Jason Quinney: No, you’re going to end up paying the same amount.

Doug Hoyes: You’re paying the same amount. So, I guess if you have joint debts or if you have some debts together or you both have debts, then you want to sit down with a trustee and crunch the numbers.

Jason Quinney: Correct.

Doug Hoyes: Okay, should we do the bankruptcy together or should we not? I guess one of the problems with doing a joint bankruptcy is, you only get discharged if both of you complete all of your duties.

Jason Quinney: Yes.

Doug Hoyes: And so what would be a common example of a duty that might not get completed if we did a joint bankruptcy. So, I do what I was supposed to do, my joint person doesn’t, what would be an example of something they wouldn’t do? What have you seen in your experience?

Jason Quinney: Sometimes people get divorced during the process. So, one spouse could take off. Maybe one spouse is sending income and expense statements and the other spouse isn’t. Cause if they’re separated then they got to send in two.

Doug Hoyes: Got you.

Jason Quinney: Other things maybe tax information, maybe one spouse provides their tax information and the other spouse doesn’t.

Doug Hoyes: Or attending the counselling.

Jason Quinney: Attending the counselling, exactly.

Doug Hoyes: So, if there’s any risk that your spouse isn’t going to be able to fulfill all their duties, that might be an option to do two separate bankruptcies as opposed to one.

Great, well I appreciate that Jason. We’re going to take a break and come back to wrap it up. Thanks for being here today to talk about joint debts. You’re listening to Debt Free in 30. We’ll be right back.

Let’s Get Started Segment

Doug Hoyes:   It’s time for the Let’s Get Started segment here on Debt Free in 30. I’m Doug Hoyes and today I’m joined by Jason Quinney, who’s a Bankruptcy Trustee and Consumer Proposal Administrator. We’ve been talking today about joint debts, co-signers.

So, Jason I want to talk about joint proposals. So we already talked about a joint bankruptcy and you listed a number of potential areas where you can get into trouble with a joint bankruptcy if one of the parties doesn’t fulfill all their duties. They don’t get their tax information in, they don’t prove their income every month, they don’t attend counselling sessions; I assume that most of those same issues could happen in a joint proposal.

Jason Quinney: Yep.

Doug Hoyes: Let’s start with the basics then. What is a joint proposal, what does that mean?

Jason Quinney: A joint proposal is when two people file a consumer proposal together.

Doug Hoyes: Okay, so instead of us filing two separate ones, we do one together. Why would we do a joint proposal?

Jason Quinney: If you have common creditors or joint debts, joint creditors.

Doug Hoyes: So, then it kind of makes sense.

Jason Quinney: Yes.

Doug Hoyes: Now is it going to be more expensive or less expensive if I file a joint proposal?

Jason Quinney: It would be less expensive.

Doug Hoyes: So, let’s take an example, then. Not that I don’t believe you but let’s actually crunch the numbers, then. So, we’ve got, between us we’ve each got let’s say $30,000 worth of debt, and most of that debt is joint. We both co-signed a $25,000 line of credit. So, in order to file a joint proposal you said we have to have commonality of debt. So, obviously if we both have a $25,000 line of credit, that’s – our debts are substantially similar. So, if I file two separate proposals, walk me through the math then.

Jason Quinney: Okay. So, if you file two separate proposals we would have to look at both. The amount of debt would be 100% for both separate files. So, we don’t split the debts, you can’t split the debts in half.

Doug Hoyes: So, I’m going to do a proposal, my debts are $30,000.

Jason Quinney: Yep.

Doug Hoyes: And let’s assume just to keep it simple here I don’t have a whole lot of assets, I don’t have a whole lot of surplus income. What kind of numbers am I going to have to offer to get the creditors to accept that proposal?

Jason Quinney: Probably around 10 to 12 thousand.

Doug Hoyes: So, something around a third, that’s kind of the typical number that most of the big banks are looking for, sometimes it can be less, sometimes it can be more. So, I go and I file a proposal, I got to pay $10,000, $12,000, whatever, my spouse is going to have to do the same.

Jason Quinney: Exactly.

Doug Hoyes: So, the total cost for us to do it individually –

Jason Quinney: It’s going to cost you $20,000.

Doug Hoyes: Whereas if we did one proposal together.

Jason Quinney: It would be $10,000.

Doug Hoyes: Okay, so that’s kind of a no brainer in that case.

Jason Quinney: Exactly.

Doug Hoyes: Now why can’t the banks figure it out when we both file a proposal separately on the same day that it’s both the same debt?

Jason Quinney: I don’t know.

Doug Hoyes: That’s just the way it is.

Jason Quinney: Yep.

Doug Hoyes: Okay, so it doesn’t make sense, but that’s just the way it is.

Jason Quinney: That’s just the way it is, yep.

Doug Hoyes: It all comes back to something we said in the first segment which is you are 100% liable for 100% of the debt. They don’t get split in half. So, if we got separated, but we still had all this debt together, could we still file a joint proposal?

Jason Quinney: Legally yes, you could if you’re separated. I wouldn’t want to do that.

Doug Hoyes: Why not?

Jason Quinney: Because there’s issues, because I mean a lot of the time there could be bantering between the two, the separated couple.

Doug Hoyes: I mean by definition we’re separated, so I guess we’re not getting along.

Jason Quinney: Yep.

Doug Hoyes: And so you’re afraid that if it’s going to be a five year proposal that the chances of us getting along for five years are kind of slim.

Jason Quinney: Exactly, yes.

Doug Hoyes: So, if I said okay we’re separated but I’m going to help my ex out by making all the payments in the proposal, legally that’s fine.

Jason Quinney: Sure, yeah.

Doug Hoyes: Practically though you worry about that.

Jason Quinney: Yes.

Doug Hoyes: Because if I don’t make the payments –

Jason Quinney: Then the other person’s – the proposal’s going to be annulled.

Doug Hoyes: Their pouched. And when you say a proposal’s annulled, what does that mean?

Jason Quinney: Well, if you fall three months in arrears, so if you fall three months behind in payments in a consumer proposal, then the proposal’s automatically annulled. So, it’s automatically cancelled.

Doug Hoyes: Okay, so you can be a little bit behind but if you get too far behind you’re toast.

Jason Quinney: Exactly.

Doug Hoyes: Have you ever done a consumer proposal for people who are separated?

Jason Quinney: No, but I’ve done consumer proposals where people get separated.

Doug Hoyes: In the middle.

Jason Quinney: In the middle.

Doug Hoyes: And some of them work, some of them don’t.

Jason Quinney: Yes. Most of them tend not to work.

Doug Hoyes: Yeah, it’s a bit of a risky situation. And part of it’s just simple math, I mean when we were together we were both earning X number of dollars a month, we had one mortgage payment, one rent payment, one phone bill, one cable bill. Once we get separated, our incomes don’t go up. But now we’ve each got our own rent, our own living expenses, so it’s a lot more difficult than to be making payments. Exactly, that becomes the practical consideration

Jason Quinney: Can they still afford to make the payments?

Doug Hoyes: Yeah and if they can’t – so, at that point what options do you have?

Jason Quinney: Well, you could go bankrupt, you could file a bankruptcy.

Doug Hoyes: And can you just split the proposal in half and I’ll pay half and you pay half?

Jason Quinney: No.

Doug Hoyes: So, that’s not really an option. I mean I guess you could –

Jason Quinney: You could, I mean half the person could be making half the payment, the other half could be making the other half the payment.

Doug Hoyes: So, the proposal is still exactly the same from the creditor’s point of view, it’s just that you’re paying for some of it and I’m paying for some of it.

Jason Quinney: Yep.

Doug Hoyes: But practically speaking a lot more difficult to do.

Jason Quinney: Yeah.

Doug Hoyes: Well, great I appreciate that Jason. Joint proposals they work in some cases, they’re not the perfect option in other cases, that’s a good way to end it. You’re listening to the

Doug Hoyes: Welcome back, it’s time for the 30 second recap of what we discussed today. On today’s show Jason Quinney explained that just because you’re married does not automatically make your spouse liable for your debts. And we discussed the difference between joint and supplementary accounts and what happens to co-signers in a bankruptcy. That’s the 30 second recap of what we discussed today.

I know we emphasised it many times during the show, but it’s a very common misunderstanding so I’ll say it again. You are only liable for debts you signed for. Just because you’re married does not automatically make you liable for your spouse’s debts. However, if your spouse has debts it may indirectly impact you, so it’s important to understand all of the implications of joint debt and debt owed by you and your spouse. So that you can come up with the debt management options.

That’s our show for today. Full show notes are available on our website including details on joint and co-signed debt. So, please go to our website at hoyes.com, that’s h-o-y-e-s-dot-com for more information.

The post Joint Debt and Co-Signing. Am I Responsible For My Spouse’s Debt? appeared first on Hoyes, Michalos & Associates Inc..

• Many people living in border towns work and shop in the United States. They may have a US credit or store card like a Macy’s, Coles’ or Target credit card.
• You may have attended school in the United States then returned to Canada for work.
• Others may have a business or assets that cause them to travel to the US and they may incur US debts related to that.
• Or you may be an American citizen moving to Canada and leaving behind US debts.

What happens then when you have US debts and work or live in Canada? How are US debts treated in a bankruptcy in Canada?

Collection Actions

If you have assets or earn income in the U.S., collection will start with the country of origin.  Your US creditors can, and likely will, pursue you in that jurisdiction. The same applies for debts owed to any foreign jurisdiction. If you owe a foreign debt, your creditors will pursue you legally in the country where the debt originated if you have assets or income in that country.

It’s important to know however that there is no automatic cross-border collections. If you live in Canada and default on payment of a US debt, your US creditors will call you in Canada to collect and send notification letters through the US mail but it’s expensive for them to sue you across an international border to collect against your Canadian income or Canadian assets. 

To pursue you for collection in Canada, a US creditor would first have to obtain a judgment in the United States, then bring that judgment to a Canadian court to have the debt acknowledged in Canada. Because it’s complicated and costly, most US creditors won’t bother to pursue you legally if the debt is small.

If you work in Canada, that means it’s also difficult for a US creditor to garnish your Canadian wages since they would have to work through the Canadian court system to do so.

US vs Canadian Bankruptcy

A Canadian Licensed Insolvency Trustee is only licensed to file a consumer proposal or personal bankruptcy in Canada. A US Bankruptcy Trustee or Bankruptcy Attorney is legally able to file bankruptcy in a US Court.  

If you have significant US debts, and you live or work in Canada, you may have to speak with both a Canadian and US bankruptcy trustee. If you have income or assets in Canada you might need to file a consumer proposal or bankruptcy with a Canadian trustee. If you file a proposal or bankruptcy in Canada, your US debts are included. The stay of proceedings means they cannot pursue you in Canada. Upon completion, your US debts are discharged however this applies only in Canada.

If you also have income or assets in the US, your creditors can still pursue you in the United States for US debts even though you completed a bankruptcy in Canada. You will have to work with a US bankruptcy trustee to provide the same protection against your US assets and be discharged from those debts in that country.

If you live in the US and have Canadian debts, please see our related article: Filing insolvency in Canada when living abroad.

Credit Reports

It is also important to know that the credit bureaus in Canada and the US have separate reporting systems. For example, Equifax US does not report to Equifax Canada and vise versa. So an unpaid debt in the US will not appear on your Canadian credit report.

If you have both US and Canadian debts, your solution will depend on where you earn your income and where your assets are. Talk to a Licensed Insolvency Trustee for more information.

FULL TRANSCRIPT show #123 with Rebecca Martyn

Doug Hoyes: 90% of the Canadian population lives within 100 miles or 160 kilometres of the U.S. border. That means that we Canadians frequently travel to the U.S. and many Canadians who live in border towns actually work in the U.S. each day and return home to Canada each night.

Our close ties to the U.S. are great when we want to be a tourist or a shopper or a worker but there is a down side. Some of us end up with U.S. debt. How does that happen? What can you do if you have U.S. debt? Does U.S. debt get included in a Canadian bankruptcy? Those are great questions. So, to find out I traveled today to Windsor, Ontario, which if there’s no traffic or line up at the border, is about a 12 minutes drive to downtown Detroit, Michigan. That’s very close.

So, is it true that there’s a lot of Canadians who hop back and forth across the border every day? To find out I’m joined by Rebecca Martin, a Windsor resident and the trustee in charge of the Hoyes Michalos office in Windsor Ontario. Rebecca welcome back to the show. How are you doing today?

Rebecca Martyn: I’m good thanks. Welcome to Windsor.

Doug Hoyes: It’s great to be here. So, the reason I’m here is you’re the one who’s got the experience in dealing with people who’ve got debts both in Canada and the U.S.. So, let’s start with the basics, in your experience what are the typical scenarios that would cause someone to have debt either in the U.S. or denominated in the U.S. dollars?

Rebecca Martyn: There’s basically three situations. If someone’s working in the U.S., they’re there every day, every other day or perhaps they went to school so they racked up U.S. debt when they were in school. Or they could just be people that like to go over occasionally to do some cross-border shopping.

Doug Hoyes: And so, I mean I live closer to the Toronto area so I’m not near a border all the time. Is cross-border shopping still a thing?

Rebecca Martyn: It is still a thing. Even personally I’ve noticed there’s a lot of products you can get in the U.S. that you can’t get here. So, it’s just easier to go across the border.

Doug Hoyes: And so for you if you wanted to do that it’s like, you know, it takes five minutes to get across the border kind of thing, it’s not a big deal?

Rebecca Martyn: Yeah on a good day, you wait five minutes you can go to whatever mall’s close by and get whatever you need.

Doug Hoyes: And you’re back and you’re allowed to buy, you know, many hundreds of dollars of stuff on a trip so it’s not a big deal then.

Rebecca Martyn: That’s exactly it.

Doug Hoyes: So, it’s a common thing. Okay, so we’re not really talking about the people who cross the border to buy stuff and come back because they’re probably either paying cash or using their Canadian credit card.

Rebecca Martyn: True.

Doug Hoyes: So, that’s just like anybody else. It goes on my credit card, I pay for it at the end of the month. The people who have debt that’s in U.S. dollars would be for example people who worked in the U.S. and then got credit in the U.S.. Is that a common scenario?

Rebecca Martyn: True but it’s not just the workers because a lot of the stores have store credit cards and they’ll use store credit cards to get additional discounts. So, even though you’re only there cross-border shopping, you might have for instance a Macy’s card, you use your Macy’s card you get 20% off or you might have a Coles’ card or Target card. You get 20% off, you carry that balance and bring it back home and now you have to figure out how to pay it off.

Doug Hoyes: So if I’m a Canadian I can still get a Macy’s card or Coles’ card or whatever.

Rebecca Martyn: Yes you can.

Doug Hoyes: And now I’ve got U.S. debt that’s in the U.S.. so, are there any other scenarios we’ve missed then? So, the people that are working there, are there a lot of people who do cross the border each day and come back or is that pretty rare?

Rebecca Martyn: No, I’m still seeing a lot. Not as many people are coming to us that were say coming to us five years ago just because of the exchange rate right now. It’s favourable for them to work in the U.S.. but back five years ago when it was dollar for dollar, all of a sudden they were realizing, okay I’m bringing home less money Canadian, I can’t manage my debts Canadian and U.S..

Doug Hoyes: Got you. So, it’s favourable to work in the U.S. now because you’re getting paid in U.S. dollars, which when you convert them to Canadian are a lot more. Like you say a few years ago is one to one so it was less of a deal.

So, okay so let’s assume that someone is listening to us has U.S. debts for the reasons we’ve just talked about. And let’s assume that they can’t pay them. So, they’re getting behind and they’re starting to get collection calls and they’re afraid their wages are going to be garnisheed. What are their options, what can they do? And let’s maybe break this down in two pieces. So, let’s talk about someone who has all of their debts in the U.S.. So, either a whole bunch of U.S. credit cards or maybe it was someone who worked in the U.S. for a few years, which is why all their debts are there and now they’re back in Canada. So, that’s the scenario. U.S.. debts but they live in Canada. What are some – how would you advise someone like that?

Rebecca Martyn: Well, there’s a couple of things they could do. I mean if they’re living in Canada, they’re working in Canada, they have U.S.. debts there’s no cross-border collections. Yes, the creditor’s going to call you but it’s extremely difficult and extremely expensive for someone to sue cross-border. And really are you going to sue someone cross border for a $3,000 U.S. debt?

Doug Hoyes: So, you just hit on the key point then. You said, if I may quote you, there are no cross-border collections. Meaning if I owe money in the U.S.., the U.S.. creditor, the U.S.. company, credit card company, bank, whatever, is not going to come to Canada to try to collect.

Rebecca Martyn: I mean theoretically they can but they have to get a judgment in the U.S., bring that judgment to Canadian court, have the Canadian court basically knowledge it. So, I’m sure you’re talking about tens or thousands of dollars to do that.

Doug Hoyes: So, it’s a complicated process. I mean it’s somewhat analogous to when you have debts in other provinces. It’s more complicated than if the debt is in the same province where the person is living. In this case we’ve got a border in the way. So, it makes a big difference. So, in your experience it’s very rare. Have you ever had someone in that situation where they had U.S. debts and they were being pursued in Canada? And I’m talking not millions of dollars but –

Rebecca Martyn: No, I’ve never that happen.

Doug Hoyes: You’ve never had that happen. And how long have you been in this business for?

Rebecca Martyn: 20 years.

Doug Hoyes: Okay, so this is not like you just got into this business yesterday. You’ve had a lot of experience and you’ve never seen it. So, okay so it’s a very rare thing. So, let’s take the other scenario then that I’ve got, you know, maybe some debts in the U.S.. and some debts – well, actually let me do a real simple scenario. I still work in the U.S.., I still live in the U.S.., all my debts are in the U.S., then they don’t really need to talk to you.

Rebecca Martyn: They don’t need to talk to me, they need to talk to a U.S.. bankruptcy attorney.

Doug Hoyes: Okay. So, then they final scenario is I’ve got some debts in the U.S.., some debts in Canada. Okay, am I talking to a U.S. bankruptcy attorney, am I talking to you? Am I talking to both, what should I be doing in that scenario?

Rebecca Martyn: You’re talking to both because depending on how much money you owe, you might need to do a consumer proposal or bankruptcy in Canada and you might need to do a bankruptcy in the U.S.. as well depending on how much you owe and what the chances are of someone going after you.

Doug Hoyes: So, let’s take a scenario where I’ve got, I don’t know, ten, twenty thousand dollars of U.S. debts and maybe 40, 50 thousand dollars worth of Canadian debts. And let’s assume I can’t pay it. There’s no way I can pay them. I’m working in Canada, I’m afraid my Canadian wages are going to be garnisheed by my Canadian creditors so I come in to see you, we file a consumer proposal. What happens to my U.S. debts then? Are they included in that Canadian consumer proposal?

Rebecca Martyn: They are. But they likelihood of them understanding it, unfortunately is very small. They’re still included in your proposal, there still is that stay of proceedings so they cannot pursue you in Canada for the debt. The issue that you face is if you every work in the U.S.. again, if you ever have assets in the U.S.. again, those are still up for grabs.

Doug Hoyes: So, the answer to the question depends on what the future holds for you.

Rebecca Martyn: Exactly.

Doug Hoyes: If you’re back in Canada, you’re not going to be working in the U.S.. okay, it’s almost doesn’t matter what your debts are there because they can’t come to Canada very easily and collect from you.

Rebecca Martyn: Right.

Doug Hoyes: And this stay of proceedings you talk about, that means once I file a proposal or a bankruptcy no one can sue me.

Rebecca Martyn: Correct.

Doug Hoyes: And – but we’ve already said that if they’re U.S.. debts, they’re probably not coming over here to sue you anyways.

Rebecca Martyn: Correct.

Doug Hoyes: So, for U.S.. debts when you live in Canada, work in Canada, not that big a deal then. Are – so, U.S.. debts are included?

Rebecca Martyn: They’re included.

Doug Hoyes: But it almost has no affect.

Rebecca Martyn: Correct.

Doug Hoyes: Okay. Now something that would have an affect though would be my credit report. Because if I just have Canadian debts and stop paying them, even if I don’t have a job, okay so no one can garnishee my wages. Maybe I don’t care but that’s going to be reported on my Canadian credit report, it’s going to affect my ability to borrow in the future. If I have the U.S.. debts and just decide not to pay them, how is that going to affect my U.S.. credit report? How is that going to affect my Canadian credit report? Are they the same thing?

Rebecca Martyn: No they are not; they’re two different reporting systems. Even though they’re both Equifax, Equifax U.S.. doesn’t report to Equifax Canada so you’ll have a negative U.S.. credit rating because you’re not paying your debts but those U.S.. debts will not show up on your Canadian credit report.

Doug Hoyes: So again, I don’t really need to worry about it is what it comes down to. If I’ve got U.S.. debts and I don’t pay them, it’s not going to affect my Canadian credit report.

Rebecca Martyn: That’s exactly it.

Doug Hoyes: And if I have some reason to need a U.S.. credit rating in the future then okay, then I should be dealing with them. But otherwise it’s just not that big a deal.

Rebecca Martyn: Correct, yeah.

Doug Hoyes: Have you ever had cases where the U.S.. collection agents are phoning people in Canada?

Rebecca Martyn: I do. Admittedly they’re a little bit more work because they don’t understand what a consumer proposal is because they don’t have such a thing as a consumer proposal. So, it’s just explaining to them what the equivalent is in the U.S.., that they’re still entitled to file their paperwork but they can’t call the client anymore to try to collect. And usually they – calls do stop. It does take them a little bit longer but they do stop. The creditor still is allowed to file their proof of claim and get their dividend.

Doug Hoyes: So, that’s a key point then. In my scenario where I’ve got ten thousand dollars worth of U.S.. debts, 40 thousand dollars worth of Canadian debts, I would file a consumer proposal in Canada for 50,000. It would cover all 50,000 of the debts. And if a creditor in the U.S.. files a claim with us they can get their share of the money just like everyone else does.

Rebecca Martyn: That’s true.

Doug Hoyes: That’s how it works and that’s what you would do I assume. You would put them on anyways.

Rebecca Martyn: Absolutely.

Doug Hoyes: So, if I have a bunch of U.S.. debts couple of choices then I’ve got a couple of choices. In Canada my obvious choices are I can file a bankruptcy or I can file a consumer proposal. Consumer proposals don’t exist in the U.S.. And we’re not here to give U.S.. bankruptcy advice because we’re not experts in that but what are the equivalent in the U.S.. of bankruptcies and consumer proposals.

Rebecca Martyn: So, they have a bankruptcy code and there’s two codes that apply to individuals. A Chapter Seven is very equivalent to our bankruptcy where it’s basically to liquidate your assets, pay your debts. Their Chapter 13 is similar to a consumer proposal where you offer repayment plan to your creditors.

Doug Hoyes: And if you are – if you do have U.S.. debts and you’re considering this then you already hit it at the start, you better talk to a U.S.. bankruptcy attorney. In Canada attorneys or lawyers don’t do bankruptcy work.

Rebecca Martyn: Right.

Doug Hoyes: You’re not an attorney, you’re not a lawyer, you’re – you have an accounting background as do I. And obviously, you’re also a Licensed Insolvency Trustee, which allows you to do this. In Canada we have a special rule that says lawyers can’t do this. It’s a great rule, it’s like the best rule ever. But in the U.S.. it’s all done by lawyers.

Rebecca Martyn: Right.

Doug Hoyes: So, you’d have to consult with a bankruptcy lawyer and the rules are completely different in the U.S.. In Canada when you go bankrupt you have to report your income each month and the more you make, the more you end up paying. In the U.S.. that whole means testing is done before you even file. If you make too much money they won’t even let you file a bankruptcy. So that’s a completely different system. You’ve got to get specific advice there.

So, are there any other things that pop into your head then Rebecca about this issue of U.S..? Maybe you can just kind of close by someone comes in, they’ve got U.S.. debts, they’re working in Canada, they’re not planning to go back to Canada. What’s your general basic advice to them?

Rebecca Martyn: So, what I basically do is I’ll sit down, I’ll look at them, what are your U.S. debts? What are your Canadian debts? What are you planning for the future, are you planning on working back to the U.S.., are you planning on retiring there? Do you own anything over there? And then we look and see what makes more sense for you just doing something over here, doing something over here and doing something in U.S.. and then we’ll just figure out what options best for them.

Doug Hoyes: Because there are a bunch of permutations obviously. How much debts here, how much debts there, are you going back there, are you going to be working there? What if you have assets in the U.S.? how does that affect either a Canadian bankruptcy or debts in the U.S. in general? Would that change your answer?

Rebecca Martyn: It would change the answer because when you file bankruptcy you have to disclose your assets anywhere in the world. They don’t just have to be in Canada. They could be anywhere. So, if you have assets in the U.S.. those assets are still at risk. But then there could become a bit of a conflict between who has first dibs to it, your Canadian bankruptcy or your U.S.. bankruptcy. So, it gets complicated.

Doug Hoyes: And again in a situation like that then you’ve got to get expert advice because it gets complicated. What we’re trying to do here is give a bit of an overview. If you’ve got specific questions about this then obviously give us a call or find a U.S.. bankruptcy attorney.

Rebecca Martyn: Exactly.

Doug Hoyes: Excellent, well great. That’s a great way to close the show. Rebecca thanks for being here. So, there you have it right from the expert on U.S. debt, Rebecca said if all you have is U.S. debt, then the solution may be a Chapter Seven, bankruptcy in the U.S.. or a Chapter 13 wage earner plan, which is similar to what we call a consumer proposal and you’d file those in the U.S..

If you have both U.S.. and Canadian debt the answer will depend on whether or not you plan to continue working and having income in the U.S.. or if you have assets in the U.S.. There are many different permutations. So, your best option is to talk to either an American bankruptcy attorney or a Canadian Licensed Insolvency Trustee for more information.

Rebecca can be reached on the web at hoyes.com or by calling Hoyes Michalos at 310PlAN, that’s 310-7526 and there’s no area code required anywhere in Ontario.

That’s our show for today. Full show notes can be found on our website at hoyes.com where we’ve got links to help you contact Rebecca and links to all of your options with dealing with debt.

Thanks for listening. Until next week, I’m Doug Hoyes, that was a technical tidbit edition of Debt Free in 30.

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Co-signing a loan means that if the primary borrower does not pay the co-signer will have to. A co-signing agreement creates joint and several liability for the loan. That means that the debt is owed both together and apart from the primary borrower.

Right To Collect

You both owe 100% of the debt. The loaner can not get paid more than 100% of what is owed, but they are empowered to collect from both persons named on the loan. Collection actions can be taken against either party and can include legal action resulting in wage garnishment or liens against property for both the primary borrower and the co-signer.

Lets say for example that your father agreed to co-sign a loan because you were having some financial trouble, really needed help, but could not get the loan without your help. Now it is a year later and you lost your job and missed the last few payments on the loan. Upon the default in the loan by the primary borrower (you) the creditor will contact the secondary borrower, the co-signer, (your father) to make good on the loan.

Bankruptcy Eliminates Your Obligation, Not The Co-Signers

One of the advantage of bankruptcy is that you would be absolved of any unsecured debt. However this benefit does not extend to your co-signer.

You would not have to pay, but your father would still be responsible for any co-signed debt. In the case of a mortgage, your lender would foreclose on the home and sue you for any deficiency. Since you went bankrupt, you don’t have to pay this balance so your mortgage lender will then proceed to collect the remaining amount owing from your co-signer.

If You Are The Co-Signer

As a co-signer, you have no legal recourse against the primary borrower. You can’t sue someone for something that you agreed to do.

Co-signing a loan means you have to pay it. If you enter into such an agreement it should be done with the expectation that you will end up having to pay the loan back regardless any promises to pay you get from the primary borrower.

Co-signed loans will show up on your credit report and can have an effect on your ability to borrow, including your ability to qualify for a car loan or a mortgage, just as if you had borrowed the money yourself.

Be careful that co-signing a loan doesn’t lead to your own bankruptcy. Clearly one should not enter into any sort of co-signing agreement if you lack the ability to make good on the money borrowed. No one should put their financial future at risk to help out a friend. If your friend needs help you are far better to simply give them the money they need with no strings attached, and if you can’t afford to do that, then you certainly can’t afford to borrow money to give to someone else, which is exactly what you are doing when you agree to co-sign a loan.

If you have co-signed a loan that has gone bad, you need to know your options, a licensed bankruptcy trustee is your best source for real relevant and frank advice about your options.

We meet with many people who have co-signed debts. Sometimes filing a bankruptcy or proposal is still the right solution for them if they have significant other debts. It’s also not unusual for both the original debtor and co-signer to file a bankruptcy or proposal if both have debts they cannot repay. Contact us today for a free consultation so we can give you some options to consider.

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Who is responsible for credit card debt during or after divorce?

In a divorce, the obligation to repay credit card debts you owe cannot be legally assigned by a divorce agreement like assets.

Creditors cannot be bound by any agreement between you and your spouse. From your credit card provider’s point of view joint debt means that each of you is responsible for the entire debt. If you, or your spouse, continue to charge purchases to your pre-divorce credit accounts, the other spouse will become liable for any unpaid balances. Even if your spouse agrees to repay all the past credit card debt and this is formalized in your divorce or separation decree, creditors will look to you to collect, if your spouse fail to make those payments.

You and your ex-spouse may have signed a separation agreement and your ex-spouse agreed to pay the joint credit card. This agreement is between you and your ex-spouse and didn’t involve the bank. If your ex-spouse failed to pay the debt, you will be responsible for the all of the payments on the joint credit card; not just want you consider your share. Also, any missed payments or late payments will continue to affect your credit score no matter who was supposed to make them.

What to do about debt in your name during divorce

If you are getting divorced and think this will be a concern, talk to you bank before you sign the separation agreement about getting two separate loans in each of your names to pay off the old joint debt. Your bank probably won’t just remove your name from the account if there is an existing balance. They will want to be sure they can collect, despite your divorce. If you have good credit, you can each borrow your share to pay off the full balance.  Once the old accounts have been paid off and balances transferred, close the pre-divorce credit accounts if that’s possible. At a minimum, get in writing from the bank any adjustment to the agreement as to who is responsible for payments.

When divorce debts cause a financial problem

If your spouse stops making payments, or files bankruptcy, and the bank pursues you will need to make a plan to eliminate those credit card debts.

If you are financially able you can make a payment arrangement with the creditor.

If you have other debts and paying off these pre-divorce debts becomes a problem, contact us to talk about your options.  You can file on your own, or if necessary, both divorced or separated spouses can file a joint bankruptcy or joint consumer proposal if that makes sense.

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What Debts to Include

The answer is a simple one. You must include all debts in a proposal or a bankruptcy. Both personal bankruptcy and a consumer proposal are formal proceedings that allow you to get a fresh start from all unsecured debt. 

The debts that can be discharged in a bankruptcy or proposal are quite broad. Anyone you owe money to must be listed on your statement of affairs at the time of your filing. This includes all unsecured debts like your car loan, bank loan, all credit cards, outstanding utility bills and yes, money you owe to friends and family.

Even your mortgage must be listed, although a mortgage is not included as part of the bankruptcy because your mortgage lender is a secured creditor and secured creditors are not included in a bankruptcy.

Read more: Can I Stop Paying Bills Before Filing Bankruptcy?

You Want A Fresh Start From All Your Debts

Since you want a fresh start by filing bankruptcy, this actually makes a lot of sense. There is little point “cherry picking” and being potentially stuck with a debt after you have completed the bankruptcy or proposal. 

If you need to eliminate credit card debt, then you want to eliminate all of them. We will show you options, like getting a secured credit card, to help you pay bills you once used your credit card for.

Including debts to friends and/or family is difficult, however, it could be more difficult down the road if you have excluded them and there is a falling out between the parties. You do not want to be responsible for the debt after you have completed your bankruptcy or proposal because you deliberately excluded someone.

Be Honest About Your Debts

It is important that you be honest when listing your creditors on your bankruptcy statement of affairs. Leaving a creditor off intentionally, if it is discovered, can jeopardize your bankruptcy discharge. Without this discharge, you will not be relieved of all of your other debts. Honest mistakes do happen, you may forget a creditor and so accidentally leave them off your creditors list. These types of omissions or errors can be repaired and addressed, but trying to hide a debt intentionally would actually put you in a worse situation.

Surrendering Credit Cards In a Bankruptcy

Can I keep a credit card if I file bankruptcy is one of the most common questions I receive. I understand, you may have accumulated a lot of reward points on the card, you may even have no outstanding balance on the card at the time of the bankruptcy or proposal. Unfortunately this doesn’t matter. Credit cards, the actual card itself, is the property of the credit card company that issued it to you and it needs to be returned to that credit card company when you file for bankruptcy or a proposal.  Bankruptcy law also states that you must hand over any credit cards to your licensed insolvency trustee at the time your file. So unfortunately, even with points and no balance, all credit cards must be surrendered in a personal bankruptcy.

The number one reason for filing bankruptcy is to eliminate overwhelming debt.

If you are struggling with debts, contact us for a free consultation. Bankruptcy may be the answer, but we’ll also review other options with you with the end goal to eliminate your debts and give you a fresh financial start.

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