What happens to marital assets in a divorce?

First, let me explain how bankruptcy law and divorce can affect your marital assets. 

When you file bankruptcy, any assets you own are surrendered to the Licensed Insolvency Trustee to be sold, and the proceeds are then distributed to your creditors to satisfy your debt.

If you file bankruptcy before your divorce or separation is finalized, your assets will no longer be available to divide between spouses in the divorce.

One of the most significant decisions to make in a divorce is if one spouse will be living in the marital home or if it will be sold as part of the process perhaps because the home is too expensive for either spouse to maintain. Filing bankruptcy before the divorce is finalized can limit your ability to control what happens to the property. That’s because, if there is equity, the ownership that belonged to the bankrupt spouse now vests with the trustee.

An alternative can be to file a consumer proposal to protect the filer’s share of any equity.

In a consumer proposal, you keep all your assets. Instead of filing bankruptcy, you negotiate a settlement amount with your creditors to repay a portion of what you owe over a period of up to five years. If you file a consumer proposal the marital home remains yours to be distributed when you divorce. However, you are still required to list any assets you own when you file a consumer proposal. Your creditors may want you to pay more because they feel they are entitled to the value of that equity.

If you have substantial property, the solution may be to wait to file a bankruptcy or consumer proposal until after your divorce or separation. If the property is transferred from one spouse to another as part of a family order, legal separation agreement or formalized divorce degree before filing bankruptcy, the property no longer belongs to the potential bankrupt and is now out of reach of the trustee. The separation agreement must be legitimate and not seen to be done for the sole purpose of hiding assets from your creditors.

What happens to joint debt?

You and your soon to be ex-spouse are not liable for each other’s debts unless you’ve co-signed the debt.  If this happens, they become a joint debt.

In some cases, there will be agreements between divorcing spouses that one will become responsible to maintain the payments on certain marital debt, for example outstanding credit card debt. It’s important to note that while this may have standing in family court, the creditors who are owed the money don’t have to follow a family court order. If your spouse files bankruptcy, even after your divorce is finalized, you could be liable for a joint debt, even though your spouse agreed to pay it. To make sure you are absolved from any liability to repay joint debts, the creditors must agree to remove you from any loan agreement before the other spouse files a bankruptcy or consumer proposal.

A bankruptcy or consumer proposal does not deal with secured debt so it will not affect your mortgage payments if you keep your home, beyond what you agree to in the divorce agreement.

Income, support payments and surplus income

When you file bankruptcy, any income over a certain limit will trigger what is a called a surplus income payment into your bankruptcy to compensate your creditors. If you file bankruptcy before your divorce, your spouse’s income can affect this calculation and increase the cost of your bankruptcy or consumer proposal.

If you file bankruptcy after your divorce, any alimony or child support payments you make can be deducted from your income before surplus is calculated, so in some cases it can be worth waiting until after the divorce for support to be determined.

If you are receiving alimony or child support payments, these payments will be added to your income for bankruptcy purposes.

When should you file a consumer proposal or bankruptcy before divorce?

It is always important to discuss your specific situation with your spouse, Licensed Insolvency Trustee and divorce lawyer, however, here are some reasons why you may want to file bankruptcy before you finalize your divorce:

• You have significant joint debts, and it makes sense for you and your spouse to clear up those debts before finalizing your divorce settlement. It is possible to file a joint bankruptcy or joint consumer proposal to eliminate the unsecured debt for both spouses. It’s also typically less costly to file together as opposed to doing it apart. This could also make life easier for both of you in a very difficult time.
• You are being threatened with a wage garnishment or seizure of assets by your creditors. Filing for bankruptcy or a consumer proposal can stop creditor collection actions, while you work to finalize your divorce.

When should you file for divorce before bankruptcy?

The main reasons to complete your divorce proceedings prior to filing a bankruptcy or consumer proposal is to provide more flexibility in dealing with marital assets. It may make sense to complete your divorce proceedings first if:

• you wish to transfer certain marital assets as part of the equalization process,
• your soon to be ex-spouse earns a much higher income than you do,
• you will be paying high alimony or support payments that could reduce your potential surplus income,
• your personal or emotional situation warrants completing your divorce ahead of any other considerations.

Can couples file bankruptcy together after divorce?

Divorced couples are still allowed to file a joint consumer proposal or joint bankruptcy to get relief from their combined debts. It is not uncommon for separated couples to find themselves no longer able to repay debts they could manage while married. Divorce changed their financial circumstances. Divorce costs can lead to divorce debt and operating two homes can significantly reduce the amount of monthly income available to repay old marital or joint debts.

To determine whether a joint consumer proposal or bankruptcy is the best way to go, both spouses should contact a Licensed Insolvency Trustee to get an assessment of their individual financial obligations.

If you need to file for divorce and bankruptcy, it is very important to talk to a divorce attorney and a Licensed Insolvency Trustee before filing for either one. The decision as to whether to file bankruptcy or divorce first should be made based on what’s best for you at the time. If you need further advice about the timing of your bankruptcy vs your divorce, contact us for a free consultation. We’re here to help.

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Advantages and disadvantages of a joint application

When you apply for a joint debt or loan as a couple, you are saying to the lender: we would like to use our combined credit capacity, and our combined income, to support our loan application.

There are advantages to applying together for a debt consolidation loan.

• If one spouse’s debt-to-income ratio is too high, you can use the income of the second spouse to improve this lending factor.
• Similarly, if one partner has a bad credit score, the application may be approved on the merits of the second co-applicant or cosigning spouse.
• By improving the quality of your application and overall creditworthiness, you may qualify for a lower interest rate loan than the high debt spouse can acquire.

While you can borrow more money with a shared application, the downside is that as co-borrowers, you both will be legally obligated to repay the loan.

A joint debt creates what is known as a ‘joint and several’ liability. Both parties are 100% liable to repay all the debt. This can create significant financial risk for the spouse that is now assuming responsibility for debts created by the other spouse.

Credit score issues

Lenders are in the risk management business. To qualify for a low rate consolidation loan, at least one applicant will need a good credit score. You are relying on the positive credit history of one spouse to override the negative history of the other.  However, making a joint application means that the debts that were affecting your spouse’s credit score will now impact yours. 

• Your credit score may fall because you have taken on new credit.
• Multiple applications create hard hits on your credit report that can also hurt your credit score.
• A new loan can also increase your credit utilization ratio until you begin to pay down the consolidation loan.

Marital breakdown

Joint debt means you are responsible and liable under the terms of a signed loan agreement. It doesn’t matter who says they will pay the loan. If you divorce or separate from your spouse, and they stop making payments, the lender will look to you to repay the debt.

Debt cannot be allocated in a divorce or separation agreement. While your separation agreement might call for a 50-50 split of debts, or your spouse might agree he will make the monthly payment because the debt was his originally, the agreement between the two of you has no legal impact on your lender.

Further, it is not possible to have a name taken off a joint loan without the lender’s permission, and because the lender approved the loan based on a joint application, they may not be willing to do so. In the event of a marital breakdown, you could be left with payments you can’t afford.

Marital assets and property

Another factor to consider is whether you want to risk any family assets to consolidate unsecured debt like credit card debt.

Converting unsecured debt into a secured consolidation loan is one of the riskiest consolidation strategies we see.

If you are fortunate enough to own a home, a home equity loan, or home equity line of credit can seem like an attractive loan consolidation approach to deal with one spouse’s problem debt. However, merging family debt into your mortgage creates two financial risks; you are now liable for larger mortgage payments and, if you and your spouse default, you risk losing your home.

Income stability

One of the most common reasons people find themselves unexpectedly filing a bankruptcy or consumer proposal is a job loss or income reduction. Consolidating debts with your spouse means you are both equally responsible. If one spouse loses their job, you may no longer have the income capacity to keep up with your consolidation loan payments. The option for one spouse to file bankruptcy to deal with their separate debt, leaving the other financially stable, is off the table once you agree to consolidate your debt legally.

Student debt

With student loan debt is a growing issue among millennials, many are entering their marriage years already in debt. Today 1 in 5 of our clients carry student loan debt, and this rate is growing rapidly. If one spouse has been unable to earn enough to repay their student loans, it may make more sense for them to consider student loan relief options rather than burdening the two of you with ongoing loan repayment.

Student loan consolidation is also not always a good idea as you can lose the tax benefits of the deductibility of interest on Canada student loans.

Is a joint loan the best option?

Problem debt is problem debt. It may not make sense to shift bad debt to your partner. This may not help either of you get out of debt.

The reason most couples consider a joint consolidation loan is to use the good credit history of one spouse to help the other deal with overwhelming debt. However, if one spouse is experiencing financial hardship because of their loan payments, burdening the second spouse with the same joint legal obligation may not be the best course of action.

Before consolidating one spouse’s bad debts into a family debt, it may make more sense for the spouse with debt issues to talk with a Licensed Insolvency Trustee about loan forgiveness. The spouse with high consumer debt may want to consider filing a bankruptcy or consumer proposal as a form of debt relief rather than transfer the debt obligation to the other.

There is a secondary benefit in keeping personal responsibility for personal debts. This can preserve the credit rating and credit capacity of the spouse with good credit for future needs. That spouse can still qualify for a mortgage while both spouses save money for a down-payment after completing a consumer proposal, for example.

Filing insolvency does not affect your spouse’s credit. This is one of the common misconceptions of how a bankruptcy filing impacts a spouse. The spouse filing insolvency can work to improve their credit without harming the credit of their partner.

In the end, you must decide as a couple about consolidating your debt through a joint loan. Talk together about how and who will make the monthly payments, what happens if your finances or relationship changes, and how refinancing with a joint consolidation loan will affect your future financial goals.

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Jointly-owned property may include a matrimonial home and any equity they have built up, joint ownership in a family vehicle, unregistered savings accounts like a GIC or bank account that are in both spouses’ names, or co-owned registered savings like RESPs.

In a bankruptcy, the Licensed Insolvency Trustee (LIT) is required to realize on all non-exempt assets, which includes the bankrupt’s share in any joint property. Below I explain what happens to various types of joint-owned property and what both the bankrupt and non-bankrupt owners of an asset can do to keep their property while achieving debt relief.

Bankruptcy Impact on Joint Matrimonial Home and Real Estate

While there are specific exemption limit differences between provinces in Canada, in general, bankruptcy law requires the trustee to realize on the equity in your house at the time you file bankruptcy. For simplicity, I’ll use Ontario laws, but the general principal applies to a jointly-owned home no matter where you live in Canada.

In Ontario, the Execution Act states that the debtor’s principal residence is exempt from seizure in a bankruptcy if the debtor’s equity does not exceed $10,000. But if his or her equity exceeds $10,000 in the principal residence, it then becomes subject to seizure. Your Trustee will recommend that you get an appraisal on your home as part of the initial debt assessment to determine how much equity there may be in your house.

What happens if you and your bankrupt spouse own a home with an equity over $20,000?

Consider my example:

Dave is considering filing bankruptcy. Let’s say Dave and Katie own a home worth $350,000. The mortgage on their home is currently $300,000, leaving $50,000 in equity. Based on their legal records, they each own a 50% interest in the home.  That means that, as the bankrupt, Dave has a potential realizable asset in his bankruptcy of $25,000.

To avoid the sale of their home, but to allow Dave to declare bankruptcy, Dave and Katie each have the following options:

• Dave could pay his share of the equity value in the home to the Trustee to satisfy his creditors as part of his bankruptcy payments
• Katie could purchase Dave’s share of the equity from the trustee for fair market value.

If making arrangements to repay Dave’s share of the equity to the trustee is not possible for the husband and wife, then the Trustee can obtain court approval for the partition and sale of the property. This would then force the sale of the property at a court-approved price.

A better alternative in these situations is often to file a consumer proposal rather than a bankruptcy.  A consumer proposal would allow Dave to make a deal with his creditors to repay a portion of what he owes over a period of  up to 5 years, while keeping his interest in the home intact.

Bankruptcy and Joint Home with Ex-Spouse

It’s not uncommon for a separated couple to still own a home together pending formal distribution of the marital assets. If you file bankruptcy during your divorce, but before any divorce or separation agreement is finalized, any assets you own at the time you file are subject to seizure in your bankruptcy including your share of the house even though you are no longer living there. Should you file for bankruptcy, your ex-spouse who currently resides in the home might be affected.

Like my previous example, the impact of bankruptcy on a joint home will all come down to how much equity is available.

If, pending completion of your divorce your ex-spouse lives in the home, your ex-spouse can work with your Trustee to buy out the equity, putting funds in your bankruptcy equivalent to the equity for the benefit your creditors, in exchange for a deed giving them full title to the property.  

If the marital home is being sold as part of the divorce, the Trustee may register a lien on the property for the amount equal to the bankrupt’s share of the equity until a sale is completed.  The lien will result in any sales proceeds being paid to the trustee ahead of the spouse, but after repayment of the mortgage.

As a best practice, during your divorce proceedings, you should explicitly state in your separation agreement that the ex-spouse who will be living in the home is also entitled to all shares of equity in the home. This way, you can avoid future financial problems if one spouse files bankruptcy.

Bankruptcy Impact on Family Owned Vehicle

If you and your spouse own a vehicle outright, with no financing, and both your names are registered on your vehicle ownership, this means the value of the vehicle is split 50/50 between both owners.  In this case, the first thing your trustee will consider is how much the car is worth. In Ontario, bankruptcy exemptions allow a bankrupt an exemption for one motor vehicle up to $6,600. Since you share ownership, if your 50% share of the value of the car is below this amount, the vehicle would not be seized by the trustee.

In the unlikely event your share of the vehicle is worth more than that amount (meaning the vehicle in total could be sold for more than $13,200) you, or your spouse, have the option to “buy out” the difference from the trustee for the satisfaction of your creditors.

If you don’t own the car outright and the vehicle is currently financed, leased, or has a secured charge against it by another creditor, the car will be considered a secured asset and not included in the bankruptcy. You can keep it as long as either you or your spouse stay up-to-date on payments. Should you fall behind on your loan payments, your lender can seize the asset and bankruptcy won’t be able to stop that process.

Bankruptcy Impact on Savings Accounts

Spousal RRSPs

Registered savings like RRSPs and company and government pensions cannot be held jointly. A bankrupt’s pension or RRSP is protected in a bankruptcy under the Ontario Pension Benefits Act which means that the assets cannot be seized except for contributions made in the last 12 months.

Because only contributions made in the last 12 months are subject to seizure in a bankruptcy, this can create a tax implication for the non-bankrupt spouse if they have made spousal contributions in the last year.  In the case of a Spousal RRSP, the spouse is the registered account owner, beneficiary or annuitant. If the annuitant files bankruptcy, any contributions made in the last 12 months will be seized by the trustee.  Tax law in Canada states that if the non-annuitant spouse contributes to the Spousal Plan in the current year or the two prior years, and the annuitant makes a withdrawal, then the amount of the withdrawal will be included in the non-annuitant spouse’s taxable income.

RESPs owned jointly

The only registered savings plan that can be held jointly is an RESP. While the beneficiaries of the plan may be your children, the person who set up the plan, or subscriber, is the plan owner and it is possible to have joint subscribers.  If you and your spouse own a joint RESP, each spouse owns an equal share of the funds in the program.

Currently in Ontario RESPs in a bankruptcy are subject to seizure.  Should one of you file for bankruptcy, the bankrupt or their spouse can “buy back” their seized half from the Trustee either as a lump sum or as part of the bankrupt’s bankruptcy payments.

Bank and savings accounts

It is not uncommon for spouses to share a joint chequing account.  Most people who file bankruptcy do not have significant funds saved in these accounts. In general, the trustee will not pursue seizure of a reasonable amount in a joint bank account if that amount is immediately needed to cover rent, groceries and living costs for a short period of time.

However, legally, joint savings accounts, GICs or other unregistered plans are not protected in a bankruptcy and your Trustee will look to realize on the bankrupt’s 50/50 share in these assets.

Keep Your Jointly-Owned Property with a Consumer Proposal

We often see clients who have a significant amount of equity in their homes and joint savings but not enough to refinance their unsecured debts. In this case, rather than filing a bankruptcy, a consumer proposal is the better debt elimination solution.

A consumer proposal allows you to eliminate up to $250,000 in unsecured debt and has no impact on your joint property whether home equity, vehicle(s), or registered and unregistered savings plans, regardless of their value, so you and your spouse can retain ownership. In exchange for retaining assets, a consumer proposal allows the debtor to make an affordable settlement offer to creditors. Once accepted, the debtor enters into a contract with their creditors to settle the debt owing.

If you or your spouse are facing debt problems and you are concerned about what will happen to your joint property in a bankruptcy, you can speak to a Licensed Insolvency Trustee for a free consultation. We’d be happy to review your specific scenario, provide advice on how your assets are affected and what your best debt relief options.

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From a strictly legal perspective, your spouse is only responsible for your debts if it is a joint debt or if they have co-signed or guaranteed for your debt. If this is not the case their credit rating should not suffer.

Supplementary Cards

Spouses often share supplementary credit cards.  Typically the primary card holder will request a supplementary card for their spouse.  Since the spouse did not apply for the card, they are not legally responsible for it.  However, if the spouse uses the supplementary card, it is not uncommon for the credit card company or a collection agency to then pursue the supplementary card holder if the primary card holder defaults on the payments.   Prior to filing bankruptcy you should review this with your trustee, to determine if your credit cards have supplementary or joint co-borrowers.

Joint Debts

Unlike with a supplementary credit card where only the primary borrower is legally responsible for the debt, with joint debts both parties are fully liable.

Financial issues can often lead to separation or even divorce. Blaming each other for all the accumulated debt lies at the bottom of such divorce cases and many times partners believe they can get rid of debt if they get divorced. Unfortunately, although matrimonial property is generally split between partners, the same does not apply when it comes to debt. In the province of Ontario, joint debt is not a 50/50 split as most people would imagine.

Divorce and Debts

What most couples aren’t aware of is that getting divorced will not split the debt in two or exonerate them of debt at all. You and your spouse maintain equal responsibility of ensuring that all debt is fully repaid even after divorce. Divorce is not a way to avoid the effects of bankruptcy.

In fact, even in the special situation where there is a legal separation agreement stating that each partner is to assume half of the joint debt, a creditor can still pursue the other spouse for all amounts outstanding if one of the partner defaults. Not even such agreements will release your spouse of your portion of the debt should you fail to repay it. Property can be owned jointly, but debt cannot. As a result, the other spouse is liable for their spouse’s debts should they default on their payments or file for bankruptcy.

Remember, you are getting divorced from your spouse, but not from the bank, so once you co-sign a joint debt you are responsible for the entire debt, unless the debt is paid or the bank agrees to release you from that debt.

Summary

Every situation is unique and things are not always simple. There are certain situations when the fact that you filed for bankruptcy can impact your spouse and your marriage.

If you have joint and other debts that you may be unable to pay, or if you have questions about how filing for bankruptcy will affect your spouse, your marriage and your family, contact us today for a free consultation. We can answer your questions.

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How Does Bankruptcy Affect Alimony & Maintenance or Support

Bankruptcy does not discharge outstanding alimony or child support payments in Canada pursuant to section 178 (1)(b) the Bankruptcy & Insolvency Act.

The spouse owed back support payments can make a claim in the bankruptcy and receive their share of any ‘dividend’ paid from the estate. Any alimony or support arrears for the 12 months prior to the date of bankruptcy are considered a preferred claim and are paid out of the proceeds of the bankrupt estate before any other unsecured claims. The balance left unpaid is still owed by the paying spouse.

Unpaid debts due to equalizaton payments under the terms of a divorce or separation agreement are treated like any other unsecured debt and are eliminated by filing bankruptcy.

Do Support or Alimony Payments Affect Surplus Income?

Support and alimony payments are deductible for purposes of calculating surplus income. This potentially lowers your net income, reducing any surplus income payment you may be required to make in a bankruptcy.

Filing for Bankruptcy During Divorce

Whether you file bankruptcy before or after your divorce is finalized affects whether your creditors will be entitled to any assets that may be part of our divorce agreement.

If you file bankruptcy before your divorce is final, your assets transfer to your bankruptcy estate and are no longer available for distribution in a divorce.

Alternately, if you finalize your divorce before bankruptcy and assets are transferred to an ex-spouse as part of a Family Court Order or legal separation agreement before you file for bankruptcy (assuming not done fraudulently) then these assets are no longer available for your creditors in the bankruptcy.

What Happens To Joint Debts After Bankruptcy?

A joint debt cannot be eliminated by a divorce or separation agreement. That means that, no matter what your divorce or separation agreement says, debts that were owed by both you and your spouse before the divorce, will still be considered joint debts after the divorce. If one spouse files bankruptcy, the creditors can, and will, pursue the ex-spouse for payment of a joint debt regardless of what you agreed to in the divorce.

To eliminate a joint debt, your lender must agree to remove one spouse from any debt they co-signed or guaranteed. This includes joint credit cards.

How To Deal With Debt Problems In A Divorce Situation

A divorced or separated couple can still file a joint bankruptcy or joint consumer proposal to eliminate combined debts. This is not uncommon as a method of dealing with joint debts owed by a couple who can no longer repay these debts due to their divorce and a change in their financial circumstances.

Whether a bankruptcy or consumer proposal makes sense for you, or your ex-spouse requires an assessment of each of your individual financial obligations.

Talk with a local Licensed Insolvency Trustee, either together or separately, to find the right solution when one, or both of you, cannot repay your pre-divorce debts.

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So what happens when two people are liable to repay the same debt?

It is possible for two people to file a joint consumer proposal to deal with debt. Whether or not you need to depends on the answers to a few questions.

• Are you both in debt?
• Do you both need relief from your debts?
• Is a consumer proposal the right solution for both of you?

Let’s deal with some basics first.

What is a Joint Consumer Proposal?

Consumer proposals may be filed jointly by more than one person as long as all or substantially all of their debts are similar.

To understand this definition we need to look at two factors: similar and substantially.

• Similar can be interpreted as meaning that both parties are liable to repay the same debt. So if both a husband and a wife have co-signed on a bank loan or have joint names on a credit card, they each owe that debt.
• Substantially is a bit trickier. The law doesn’t actually define exactly what substantially is, but it has been interpreted to mean 90% of their debts are the same. This 90% rule is not strictly enforced – it is more of a guideline but essentially it would only make sense to file a consumer proposal together to deal with combined or joint debts.

For example, John and Mary are married.  John owes $40,000 in credit cards and other debts.  Mary is joint on $20,000 of the debts and has another $2,000 in her own debts.  90% of Mary’s debt is similar to John’s so they are eligible to file jointly.

To file a consumer proposal jointly, each person must be eligible to file a consumer proposal individually.  That means each person must:

• owe more than $1,000 to their creditors (even as a co-borrower),
• be unable or unwilling to pay their debts as they come due,
• have assets (the things that they own) that if sold, wouldn’t pay off their debts.

Advantages and Disadvantages

Should you file a joint proposal?

No one can be forced to file a consumer proposal. Even if you are married and one spouse decides to file, the other spouse is free to file or not, depending on their own decision.

There are two main advantages to filing a joint consumer proposal:

• The debt limit to file a consumer proposal is increased to $500,000 for a joint proposal, from $250,000 for an individual (excluding any mortgages on a principal residence).
• Some costs can be saved and therefore more money may be available to offer the creditors increasing the chances of success while keeping your payments affordable.

The downsides of filing jointly:

• a record of having filed a consumer proposal will appear on both parties credit report so you both will find your ability to borrow limited for a period of time;
• both persons are responsible for making the full payment (it’s like another joint obligation). So if one person doesn’t make the payment, the other must or the proposal will be annulled once you miss 3 payments.

Possible Scenarios

The only way to decide whether or not you should file jointly is to consider what makes the most sense for the family and their creditors. Each case is different and whomever you are working with to deal with your debts should walk you through all possible options.

While the most common approach when debts are substantially the same between spouses is to file a joint consumer proposal we have seen cases where:

• One spouse files a proposal and the other keeps doing what they have always done.
• One spouse files a proposal and the other files bankruptcy.
• Both spouses file their own proposals because that’s what makes the most sense for them.

Do you both need to file a consumer proposal?  Maybe, but you don’t have to.  At the end of the day each of you should do what makes the most sense for you and for the family.  Contact us today to book a free consultation so we can help you review the pros and cons of each alternative for both of you.

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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..

The best advice for dealing with any situation, is to be proactive.  Plan ahead, be prepared, and know your options.  If your future goals include starting a family, begin the process early.  It may seem eager, but the more prepared that you can be for a new baby, the better.  Christi explained that,

once I stopped dreaming and would come back to reality, I would realize that [a house and kids] wasn’t where we were right now and we weren’t where we wanted to be.

She admits that her turning point was when

We wanted to get married and we wanted to have a house and a yard and everything. We couldn’t afford any of that with all our debt. So, that’s where we really had to start.

Christi suggests starting a savings account dedicated to your goal; look into your benefit options at work and through the government, get your debts in order, and create a budget.  Planning for the future will get you where you need to be financially and reduce any unneeded stress when that time comes.  The same rings true for individuals looking to buy a house, make a career change, or simply go on a vacation; be proactive.

Christi breaks down her approach into three simple stages:

1. Create a Budget
2. Balance the Budget
3. Live the Budget

This begins with asking yourself the hard questions. Do you know where you money is going? Why are you in debt every single month? Are you living beyond your means?

Also know that your expenses are going to change during maternity. Some costs will go down. You may be driving less so you might save on fuel costs. You may spend less on clothes and entertainment. Christie even found she could save money on her cell phone plan because she was able to use wi-fi while at home. But recognize other costs will go up. Christi talked about her personal experiences and what costs surprised her along the way.

Automate Your Finances

When your baby arrives, bill payments and savings accounts will not be the first thing on your mind. Christi suggests that right before your due date set up automatic bill payments and transfers as a way to budget.

we knew that we had to put our budget into action on auto-pilot because paying bills and saving money wasn’t going to be on the top of our minds as new parents.

I agree with this approach and recommend this strategy for anyone looking to save their money.  The budget that you created ensures that you have money in the bank and having that money filtered out automatically, will help to avoid missing payments or opportunities to keep your finances on the right track during any circumstances.

Plan Ahead to Stay Out of Debt

I’m heartened to see that so many understand that deciding to raise a family is a huge financial commitment that requires thinking carefully about the impact it may have on your budget and overall financial health.  All too often I see families struggling with debt, or worse, how divorce and parenting alone can often lead families to turn to credit to make ends meet.

For example, here are some facts from our most recent Joe Debtor bankruptcy and debt study:

• 43% of all insolvent debtors have a dependent;
• 64% of married debtors have a dependent;
• Almost one in five insolvencies (18%) are lone parents (either single, separated or divorced)

While having children does not cause financial problems, there is no question that bankruptcies affect families. In order to ensure that you don’t become one of these statistics, take a cold hard look at your finances as part of your preparation for maternity:

• if you owe money today, make a plan to get out of debt now because money pressures only increase as your children get older;
• make a family budget that will ensure you stay out of debt once you’ve reached that goal;
• start saving as early as you can through programs like an RESP so you do not have to go into debt later in life for costs like your child’s education. This time arrives much quicker than you think.

To learn more, listen to the show or read the full transcript of today’s podcast below.

Additional Resources Mentioned

• Christi’s budget calendar
• Follow Christi on twitter
• Hoyes Michalos Budgeting Workbook

FULL TRANSCRIPT show #27 with Christi Posner

This show was rebroadcast as episode 47 during the Best Of summer segments.

Today we will talk about debt and money and personal finance, but to start we’re going to talk about pregnancy. What? No, don’t worry this show always gets a clean rating on ITunes. Today the discussion will be about financially preparing to start a family.

It’s great that we have kids when we’re young, because otherwise we wouldn’t have the energy for the 2 am feedings and diaper changes. But the disadvantage of having kids when you’re in your 20’s or 30’s is that you’re still young, so you’re probably not well established financially. You haven’t been in the workforce for 20 years, you probably just bought a house so you’ve got mortgage debt; you probably just bought a minivan with a loan, so cash is very tight.

So, how can you financially prepare before your bundle of joy arrives? I don’t know. I’m a guy and both of my sons are teenagers so my memory of those early days are somewhat foggy. So, today my guest has a much more recent experience with starting a family, so let’s hear what she has to say. So, let’s get started. Who are you and what do you do?

Christi Posner: Hi Doug, my name is Christi Posner and I am a Credit Counsellor for the Credit Counselling Society. I’m also a lead writer for mymoneycoach.ca, which is a website that helps people learn to manage their money and learn about credit and learn how to pay down their debt and save money.

Doug Hoyes: Very cool. Well, thanks for being with me, Christi, and I will put notes to that website you reference and everything else we talk about in the show notes over at hoyes.com. So, you had your first child in 2014. So, when was your son born?

Christi Posner: He was born in July of 2014 on a beautiful summer day. So, he’s about 8 months old now, yeah.

Doug Hoyes: So, you’re still at the very early stages obviously with a young child at home. Why don’t you walk us through a bit of your history then? Tell us how you got started in the whole credit counselling thing. Give us a bit of your life story.

Christi Posner: For sure. I always knew from a young age that I wanted to be a mom. My mother asked me what I wanted to be when I grew up one day and it was a mom. That was my answer.

So, I knew that as I went through university and I got my Bachelor of Human Ecology and learning how families handle their stress and their money and their time and learning all about that. Come 2010 when I graduated from university I applied to a position at the Credit Counselling Society as a Credit Counsellor and it ended up being my dream job. I was really lucky to come out of university and work for such a great company.

So, during university, and as I’m growing into my 20’s and starting to establish myself, I would continually dream about what having a family would look like. I had a boyfriend and we were starting to talk about those kinds of things. And I would dream about our little kids playing around in the house one day and running through the yard and that kind of thing. But once I stopped dreaming and would come back to reality, I would realize that wasn’t where we were right now and we weren’t where we wanted to be.

When he became my fiancé we were living in a condo at the time where we had to walk up three flights of stairs just to get to our condo, and I couldn’t imagine being nine months pregnant or carrying car seats or kids up those kinds of stairs. We didn’t have a yard to play in. We weren’t physically where we wanted to be. We weren’t married yet and we were in a ton of debt from university. I used to work for banks and credit card companies and I had really tempting staff rates and I had racked up a lot of debt before I became a Credit Counsellor and really got myself together.

So, we decided that if we were going to have a family one day, we were going to have to start working towards that goal. And we wanted to get married and we wanted to have a house and a yard and everything. We couldn’t afford any of that with all our debt. So, that’s where we really had to start. So, the hard conversations and the arguments and everything started happening so that we could get our debt in order and reach our goals essentially.

So, we started by creating a budget. We had to sit down and take a real hard look at where our money was going, why were we going into debt every single month? And was it frivolous spending? Were we living beyond our means? We had to figure that out. So, we took a hard look at our money, we wrote it down on a spreadsheet on our computer and we also tackled our debt by consolidating it together, his debt and my debt together and we found that if we stuck to a budget, a realistic budget, we were going to be able to pay 25% of our take home income towards our debt. And we did. And in two years, we paid off over $30,000 of consumer debt together.

By that point we were then able to see that there was a chance that we could get married one day. We actually could afford a wedding and by the time that we became debt free from our consumer debt, the housing market had actually improved and we were able to sell our condo for a profit. So with that profit we made a down payment on a house with a yard and then here we are four years later and we’ve got a cute little baby boy and we’re very, very happy.

Doug Hoyes: Very cool. So, you said you did some analysis to see what was happening with your spending, why you were in debt. Obviously, I understand you were going to school, you had student loans, things like that, but you said even after you were done school you were still in effect running a deficit every month. So, why was that? What was causing that?

Christi Posner: Back then I had no concept of a budget.  I usually spent money whenever I needed it, or whenever I wanted to spend it, or I felt like it, and I usually had to dip into my credit cards to make it to the next payday, and it was really hard to keep track of my money, because at the time I was working three different part time jobs while I was attending university, so my income was changing every time I got a paycheque.  So I just spent until there was really nothing left to spend.

Looking back now, I can see that my expenses added up to more than the money I was actually bringing in.  Once my fiance and I sat down and actually looked at what our income was, and where our money was going every month, we were then able to start making some positive changes.

Doug Hoyes: So, the key point is, you had to write down where your money was going every month so you could figure out where your money was going. And you discovered that it really was a case of just spending more than what was coming in. And because you had access to credit, well you put the spending on the credit card and it’s all good. And it wasn’t until you took a step back and actually crunched the numbers and said, oh wait a minute my ultimate objective here is to own my own home, have a family and there’s no way I can do that if I’m digging myself into debt. And that’s what caused you to step back and say okay we’ve got to actually watch where the money is going and that was really the first step for you then, reducing your expenses to below your income?

Christi Posner: Yes exactly. And we had to make sure we were not living beyond our means anymore.

Doug Hoyes: Great. You had to be sure you weren’t spending beyond your means anymore. That’s a great spot to end the first segment. So, we’re going to take a quick break and be back with more tips from Christi Posner.

Doug Hoyes: Welcome back to Debt Free in 30. My name is Doug Hoyes and my guest today is Christi Posner who is a Credit Counsellor. She is also a writer and she is a relatively new mother. And she’s been walking us through what it’s like to get financially prepared to start a family.

And so before the break, she told us that the first step is to write it all down; make a budget. You need to see your numbers in front of you and that has two components. Christi said, well you have to start by looking at the income; what’s going to be coming in when you’re on maternity leave and she had some good suggestions there in terms of looking at what maternity benefits you would qualify for, what other government benefits, what’s your employer going to do and so on and then obviously taking a look at your expenses.

And Christi when you were talking about expenses, part of your analysis was to figure out what expenses I have now and what expenses are going to change. So, can you give us some examples of that? You talked about it a bit before the break. What expenses did you see that actually went down when you were planning for maternity leave and when you went on maternity leave?

Christi Posner: Some of the expenses that I was surprised by, I thought that our fuel would stay relatively the same but the fuel for our vehicles went down significantly because I’m home most of the time. So, that’s one place that we found we were going to save money.

And another one was our cell phones. I’m on my cell phone quite a bit and I used quite a bit of data while I was in the workforce and my cell phone plan, because I am home with Wi-Fi, I didn’t really use any data, so that went down significantly as well.

Doug Hoyes: Did you actually change your cell phone plan? Or it just went down because you weren’t being charged the same overages.

Christi Posner: I changed my cell phone plan because I didn’t require the same amount of data that I was using while I was working. So, we made a change and significantly reduced that cell phone plan.

Doug Hoyes: That’s a very good practical point then. Take a look at what you’re paying on your cell phone now. And that’s an area where 20 years ago, 30 years ago, nobody had a cell phone because they didn’t exist and now they’re tied to our hip at all times. But you’re saying okay a big chunk of my bill was data. If I’m at home, I link into the Wi-Fi, I don’t need it. No sense continuing to pay for three megs a month if I’m not using it.

So, those are a couple of the things that went down. You mentioned in the earlier segment about clothing. Did you reduce your clothing expense or did that go up? I mean obviously you had to start buying clothes for your son, but did your own personal clothing expense change or how did that work?

Christi Posner: They definitely did. My priorities changed really quickly when we were looking at our maternity budget. Because when you want to have a family, that’s where your money is going to go and if you have to choose baby clothes over spending tons of money on my own clothes, that’s perfectly fine. I feel like I used to spend money just because I had it, which isn’t the way to manage your money. Just because you have money doesn’t mean it needs to be spent. It’s kind of my new mantra that I think of.

Doug Hoyes: That’s very good.

Christi Posner: So, oh yeah the clothing expenses certainly went down as well as going out. I don’t go out as much anymore. So, I don’t need as much entertainment expenses. So yeah, there were a lot of changes.

Doug Hoyes: It’s kind of hard to be hitting the bars when you’ve got to go to bed at 7:00 at night, so I understand that.

So, those are the expenses that went down, what expenses went up? So, obviously there’s the obvious ones, well I have to start buying diapers, I have to start buying wipes. Do they still have diaper genies? Is that still a thing? Do they still have that or am I –

Christi Posner: Yeah, they do.

Doug Hoyes: Okay, cause I loved that thing.

Christi Posner: That’s not something, a route that I went. We actually did a full analysis of the cost of disposable diapers versus cloth diapers and while we’re not big fans of the fun of cloth diapers I will say, we decided to go that route because financially it made sense. We ended up spending a couple of hundred dollars on a set of diapers that is going to carry us through not only our first child, but any other children we may have versus spending a 100 and some odd dollars on diapers every single month.

So, that was another area that – when we looked that that budget we saw we’re in a big deficit if we’re going to go on a maternity leave income, we had to make some hard choices and that was one of the ones we made, was to cut out the disposable diapers –

Doug Hoyes: And are you washing them yourself? Do you have some service do that? How does that work?

Christi Posner: Oh in Winnipeg we don’t have a service like that available so yes I am washing them myself. And it’s not as bad as the horror stories you hear, it’s really not.

Doug Hoyes: Wow, you’re tougher than I am cause I know changing diapers was – it was never the fun thing, the happiest days of my life were when my sons were toilet trained, let me tell ya.

So let’s get back to our discussion about expenses.

Your point on diapers is that you actually crunched the numbers, and figured out what it would cost to buy disposable diapers and compared that to the cost of buying cloth diapers and washing them yourself, and you decided it was worth it to go with the cloth diaper alternative.  So, even though that resulted in more work for you, it was a significant saving.

So what about other expenses?  Were there any expenses you actually had to save up for?

Christi Posner: First we had to save up to actually furnish the nursery.  So we had to buy a crib, a change table, a rocking chair, and we actually found a nice dresser on Kijiji for a steal of a deal. Once our son was born we realized that we still weren’t as prepared as we thought we were going to be, because as parents you will never have everything you need prepared.  There are always going to be moments where you’ll be thinking “I need to go get this, I don’t care how much it costs.”  It’s going to save my sanity, so I need to buy it right now.

So some of those things that we didn’t actually expect that we had to buy were things like formula.  We had to buy that to have it on hand when I wasn’t available to feed our little guy at home.  So that was an expense that we didn’t think that we’d have to buy.  We always thought that I’d be able to pump enough milk for when I was away, but you can’t always prepare for things like that. We also recently started introducing solids to our son.  That was something new recently. Within the first six months of when he was born there wasn’t really much of a change in our grocery budget because he wasn’t eating solids, because he was breast fed.  But once we introduced the solid food we had to buy the ingredients which started to increase our grocery costs as well. We found it was more cost effective to buy our own ingredients and make our own baby food, rather than buying the ready made food generally, but we did have to have some ready made food as well for when we are on the go. Now we are buying things like bowls, spoons, cups, those sorts of utensils for baby.  Next up we’ve got to purchase a car seat, so there are these on-going expenses that always come up for us.  So what we are doing to prepare for it is we are constantly transferring money every payday into a baby savings account, so that we always have funds available for these unexpected items that come up.

Doug Hoyes: So there’s all sorts of things that came up that you don’t even think about, and you’re right, things like car seats; unless you’ve had to buy one you don’t know what they cost.

You talked about things that happened before your son was born.  Wind the clock back a bit for me and tell me what advice you would give to new mothers and fathers in the very short period of time before your first child is born, say a week or two before birth, what are some last minute planning tips you would give to new parents?

Christi Posner: One of the best things that I did just before I went into labour, was setting up automatic bill payments and also setting up automatic transfers to our savings accounts so that our budget was on auto-pilot.

We first had to make sure that our maternity leave budget balanced, so that our expenses were equal to our new income that was going to be coming in and not more than our income that was going to be coming in.  Once that was done we knew that we had to put our budget into action on auto-pilot because paying bills and saving money wasn’t going to be on the top of our minds as new parents.

We made sure that all of our bills, our water bill, our cable bill, the electricity bill, all those bills would be automatically pulled out of our chequing account.  I know that the sound of that scares a lot of people, because they are worried that if the money is pulled out automatically, what if the money is not there, then I’m going to be charged another forty dollar insufficient funds fee, and I’m going to be going further into debt. But, I have to say that if you have taken the time to create a balanced budget and you are actually following it you don’t have to have that fear anymore, because the money will always be there.

So setting up automatic bill payments and also setting up automatic savings was the other thing we did to prepare financially before our baby was born.  We set up automatic transfers from our chequing account into our different savings accounts every payday to save up for things like Christmas gifts, house repairs, emergencies, baby things.  So we had all of those things going automatically which really helped us through.

Doug Hoyes: Set up as many of your bills as possible on automatic payment, and have a savings account to help you through.

That’s great advice, Christi, thanks for joining me today, I’ll be right back to wrap it up here on Debt Free in 30.

Doug Hoyes: Welcome back. It’s time for the 30 second recap of what we discussed today. My guest today was Christi Posner, a Credit Counsellor, a writer and a new mom.

Christi gave us a lot of great advice on preparing for a new baby and she gave us lots of practical advice on budgeting, reducing expenses and being prepared for the start of a new family. That’s the 30 second recap of what we discussed today.

So, what are my thoughts on Christi’s advice? Well, I thought she had a lot of great advice. I liked her approach to preparing for a new family and in fact her approach works well for any upcoming life change, whether it’s getting married, starting a family or moving to a new city or even retiring. Her starting point for preparing for a new baby is to get a handle on your expenses. She advises you to write it down and then start examining where you can cut expenses to build up your savings. That’s good advice.

Christi also suggests that you go to the employment insurance website to find out what level of maternity benefits you will likely quality for. That helps with your future budgeting. There’s also the universal childcare benefit of a $100 per month for children under the age of six. And as I’m recording this, the government has announced that it will be going up to $160 per month and will be reflected on your July 2015 cheque. That’s a few extra dollars to factor into your budget.

I also liked her advice to consider what expenses you can reduce when you go on maternity leave. Christi found that she didn’t need a big data plan on your cell phone because well she’s home with her baby she can use the Wi-Fi at home. So, she pro-actively changed her cell phone plan in advance. That’s another key point. Don’t wait until after your baby’s born to make changes. You’ll have other things on your mind. So, if you can do it now, that’s the best strategy. Be pro-active.

She found that her cost for her clothing went down when she wasn’t going to the office each day and her fuel costs also dropped. That’s good to know because that also gives you some extra room in your budget. Of course some expenses go up. We talked about diapers on the show and that’s obviously a new cost. She also mentioned that initially their food bill didn’t change much, but now that her son is gradually starting to eat different types of food, those costs go up. Even if you make your own baby food there is still a cost and that should be factored into your budget.

I also fully agree with her advice on automatic bill payments. Instead of worrying about when your hydro bill and other bills are due, set them up as automatic payments so they’re automatically paid. It’s easy and you have no worries.

To summarize, make a plan, be proactive and you can be as ready as possible for your new child.

That’s our show for today. This show is on the radio every week and also available on our website and on iTunes. So, please go to hoyes.com for a full list of participating radio stations and details on how you can download the show to listen on your iPod or Smartphone.

Full show notes are available on our website and I’d love to hear your comments which you can leave right on our website at hoyes.com.  That’s h-o-y-e-s.com. Thanks for listening, until next week, I’m Doug Hoyes. That was Debt Free in 30.

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 my guest today is Christi Posner, a Credit Counsellor and author. And Christi, we’ve been talking today about getting prepared to start a family, financially.

So, what do you do, what advice do you give people if they are about to go on maternity leave or they’re thinking about starting a family and they have debt. You don’t know how you’re going to get by ‘cause you’ve got debt, you have the new family coming, what’s your thought process in terms of advising people like that?

Christi Posner: So this happens a lot, like your baby was due like yesterday and you have a ton of debt and you don’t know what you’re going to do about it, especially with your income changing.

So, one of the things that we did when we were looking at our maternity leave budget – once we wrote everything down, our income and expenses – and we saw that there was a deficit and we weren’t going to be able to make it, we made sure we were on the same page. We didn’t want to end up, after all this hard work of paying down our debt, we didn’t want to end up back in debt a year later once I’m done the maternity leave. That was our goal. So we needed to make that budget balance.

So, some of the outside of the box ideas that we started looking at were if we can look at increasing our income; if there’s a possibility that you can make some income, even while you’re home on maternity leave, it’s worth exploring. Sometimes people will babysit another child or sometimes people will do a home business, deliver papers or there are different ideas. But, it’s important that you look at what are the rules when you’re on maternity leave that you need to follow in terms of how much income you can earn and then see, is it worth it? Is this something that I can do? Maybe there is some contract work that you can do here or there.

Doug Hoyes: That’s a key point what you’re saying, because if I end up taking on a full-time job while I’m on maternity leave, I’m no longer eligible for my maternity benefits. So, you’ve got to be very careful of what the rules are.

Christi Posner: Right.

Doug Hoyes: Okay, so that’s very good advice. So, looking at ways to increase your income if possible would be one step. What would be the next steps?

Christi Posner: Yup. Other things that we did, we looked at – being realistic with ourselves, it wasn’t something that we were going to be able to do, increase our income too drastically while we were on maternity leave. My husband could possibly do some overtime. That was one other option just to get some extra income here and there.

But we also looked at saving up in advance. So, if we had saved up in advance because we knew we were going to be pregnant one day, then maybe we have that reserve that we can top ourselves up during maternity leave for those 12 months and give ourselves a little bit of extra income.

Doug Hoyes: And that obviously means you’ve got to start in advance. You’ve got to be putting the money away while you’ve got it. And so you have to be living as frugally as possible before you’re going to end up needing the money.

Christi Posner: But if you’re not there anymore and you don’t have that time left, like I said this is something that happens often.  So if you’re due or you got a new baby and you’re in debt and you don’t know what to do because you just can’t make it month to month anymore, what you should do is get help from a professional, someone that you can trust like a non-profit Credit Counsellor or like a trustee that can help you to look at your current situation and look at your debt and help you find ways to make it.

So, there are a lot of options out there that are worth exploring in terms of debt; whether it’s finding a structured plan on how to pay down your debt with a more affordable monthly payment, with lowered interest rates. There’s a lot of different options out there and that’s what these people are there to do, is help you, look at your budget, see if it’s realistic, see if it’s manageable for you and also help you create a plan for your debt so that you can make it month to month and you can enjoy that time with your family and your new baby.

Doug Hoyes: You raise a good point, having a new baby is something you’re not used to. By definition, if it’s your first kid, you’ve never had one before. That’s a stress in-and-of itself. You’ve got the sleep deprivation and all the other things that come with it. You really don’t want the debt piece layered on top of that because that’s just going to make it worse and worse, obviously.

So, your advice is tackle it head on, get a handle on the numbers and obviously you’re a big fan of writing it down, tracking expenses, knowing where you’re at. And then if you’ve got a deficit that you can’t solve on your own, then you’ve got to go and talk to the professionals.

So to finish up, Christi, what’s your number one piece of advice for new parents?

Christi Posner: My advice would be to create a budget, balance the budget, and live the budget.

So create a budget first. The one that I use and have used for years and years and years is available on the home page of mymoneycoach.ca.

The second step is to balance that budget. Make sure that your expenses match your income.  Include a realistic debt repayment plan in your budget so that you can become debt free.

Finally, live the budget.  Do it as simply as you can. Put that plan into action, put it on auto-pilot, because it’s been really, really great for this new mom.

Doug Hoyes: Perfect. That’s a great way to end it. Keep it simple, track your spending, chip away at the debt. Thanks for joining me, Christi. I really appreciate it.

Christi Posner: Thanks so much, Doug.

The post How to Prepare Financially for Maternity Leave appeared first on Hoyes, Michalos & Associates Inc..

As a licensed bankruptcy trustee in Canada and someone who has gone through the immigration and Citizenship process I realized that sometimes the paths of bankruptcy law and immigration law cross.

The biggest effect that a current or past debt problem will have on immigration is that you cannot sponsor someone to immigrate to Canada while you are an undischarged bankrupt. The good news is that once you receive your discharge you are eligible to make a sponsorship application.

If you are in debt and looking to sponsor a family member discuss this openly with your bankruptcy trustee. They can still present you with several options that can allow you to clear up your debts.

You can clear your debts up quickly then proceed with your sponsorship application. This means filing bankruptcy first and then submitting your sponsorship application after your receive your bankruptcy discharge.  In Canada, a first time bankrupt could be eligible to receive a discharge from personal bankruptcy in just 9 months. Your bankruptcy can be extended however to 21 months if you have to pay what is called ‘surplus income’. It is important to discuss the likelihood that your bankruptcy will be extended with your trustee before signing any documents.

You can file a consumer proposal which does not have any impact on a sponsorship application.  A consumer proposal legally protects you from your creditors the same way a bankruptcy does and helps you to make a negotiated settlement on your debts.  There is however one significant difference between a consumer proposal and bankruptcy when it comes to immigration law. A consumer proposal means you avoid having to declare bankruptcy. Since you are NOT bankrupt, you are still free to submit your sponsorship application right away. Talk to your trustee about whether or not you can afford a consumer proposal and if this is a good option for you.

You may also choose to sponsor your loved one now and then file the bankruptcy when your sponsorship application is complete.  Given that sponsorship applications could take many months or years to complete, this would be a long time to have to try and hold off your creditors however.

If you have filed bankruptcy already you can talk to your trustee about the possibility of filing a Consumer Proposal even while bankrupt. A successfully accepted consumer proposal will annul your bankruptcy filing freeing you up to be able to submit your sponsorship application. Be aware that you will have to be able to financially support a consumer proposal for this option to work.

Bankruptcy and Citizenship Applications

Unlike with immigration applications, bankruptcy does not affect your efforts to become a Canadian citizen.  You can still apply for Canadian Citizenship regardless of whether you have filed a personal bankruptcy before, are still currently bankrupt or are considering bankruptcy.

A bankruptcy, debt settlement or consumer proposal will not affect a citizenship application.

Filing a bankruptcy does not necessarily restrict your ability to travel either, but you must keep your trustee informed of where you are and how to contact you.

Always check with Citizenship & Immigration Canada for the latest updates to rules and discuss your debt options carefully with a trustee before making your decisions.

Any of our Ontario bankruptcy trustees would be happy to help you review all of these options and provide you with debt advice on how these laws will apply in your particular situation. Don’t think you have to struggle with debts to avoid jeopardizing your citizenship or sponsorship opportunities.

The post Bankruptcy, Sponsorship and Citizenship in Canada appeared first on Hoyes, Michalos & Associates Inc..

Deciding to tackle debt repayment as a team is not the same as legally consolidating marriage debt. Here is what being married means for your debts

Bringing Debt into Marriage

Getting married does not make you responsible for your spouse’s debt.

The law treats financial contracts as distinct from marriage. Only the spouse that signed for and incurred the debt is legally obligated to repay the debt. Debts in your name will remain your debts, and debts incurred by your spouse or partner will remain theirs alone.

A husband or wife should think very carefully before adopting the other partner’s debt. While it is important to discuss each other’s financial situation and create a household budget to address common debt concerns, there is no legal reason for either spouse to assume responsibility for the other spouse’s existing debts once married.

New Debts – Joint Debt vs Personal Debt

New debts in a marriage can be more complicated. New debts may be personal debts owed by only one spouse, or they may be joint debts.

Just like premarital debt, your marital status alone does not create an automatic obligation for new debt incurred by your spouse.  You cannot be held legally responsible for debt unless you sign for it yourself. 

Depending on the nature of the debt you are applying for, a lender may

• require both spouses to sign a loan for debt as co-borrowers,
• allow one spouse to borrow if the other cosigns or guarantees the debt, or
• permit each spouse to acquire and assume individual personal debt.

If you cosign or guarantee debts, your lender will look to the second spouse if the first doesn’t make payment. These types of debts are commonly referred to as joint debts because you both are liable for repaying the entire loan.

From a practical standpoint, large debts – mortgages and car loans, high limit loans, and lines of credit – are almost always issued jointly to married couples. Lenders often look to the debt-to-income ratio of both spouses to prove they can afford the loan payments before qualifying a loan application. If a lender requires both spouses to sign for new debt, both spouses have a legal liability to repay the entire debt.

Marital Assets and Marriage Debts

Another common concern is what happens when a couple has marital property, like a home. Can a creditor seize family assets to collect on an unpaid debt?

If the debt is a secured loan, a mortgage or a car loan, for example, a creditor has the right to repossess the asset or collateral offered at the time the loan was signed if the loan is in default. This is why you should think very carefully before consolidating spousal debts with a joint consolidation loan through a secured debt using your home equity.

But what about unsecured debts like credit cards or tax debts. Can an unsecured creditor pursue marital property for money owed by one spouse? The answer is yes, but it’s complicated. An ordinary unsecured creditor, like your bank or a utility company, could obtain an order from a judge allowing them to place a lien on a debtor’s property, including the family home. The Canada Revenue Agency can place a tax lien on the property of the debtor without a court order.

Spousal Debts and Credit Score

One spouse’s credit score, bad or otherwise, will not affect their partner. Your credit report lists credit accounts that are in your name and provides a record of your credit history. Only accounts you have signed for legally will be included on your credit report and affect your credit score.

This is a common question if one spouse has high debts and is considering bankruptcy or a consumer proposal.

One of the most important things to remember at this point is the law treats each spouse as a separate and distinct individual.  One spouse may need to file for bankruptcy – that does not mean the other spouse has to do the same thing.  It is fairly common for one spouse to have financial problems serious enough to require a consumer proposal or bankruptcy, and for the other spouse to stay clear of the entire procedure.

Your filing bankruptcy, or a proposal, does not affect your spouse’s credit report.

Tackling Debt – Together or Separate?

What we typically see in a marriage is a mix of debts: yours, mine, and ours;  your existing and new debt, my existing and new debt, and our joint debt accumulated since we got married.

If you are starting your marriage in debt, it’s not the end of the world. However, you don’t want the pressure of financial problems to lead to a relationship breakdown. The key is open, honest communication and a commitment by both partners to work together to pay off debt so you can build a less financially stressful life together.

Here are my top tips for dealing with marriage debt:

1. Discuss a repayment plan ahead of time.
2. Prepare a family budget.
3. Postpone major purchases (and perhaps a family) until after the debts are dealt with.
4. Consider carefully before cosigning on your spouse’s premarital debts.
5. Don’t open a joint bank account at the same bank where one spouse owes any debt.
6. Discuss any decision to take on new debt together.
7. Consider a pre-nuptial agreement to protect any assets in the event of a marital breakdown.

If one or both spouses find themselves in severe financial difficulty after they’re married, it’s time to review your debt management options.

The options to deal with money problems after you are married are the same as those available to single people to deal with their debts, plus, the couple may have the option of dealing with them jointly (together).

Each couple in a marriage has these same debt relief options:

• Refinance or restructure your debt to make it more manageable. You need to decide if it makes sense to put up family- or jointly-owned assets as collateral or to cosign a new loan to support unsecured loans of only one partner. Remember, if you are not liable today, you will be if you cosign or guarantee your spouse’s debt.
• One spouse, or both spouses, can file a consumer proposal or bankruptcy to deal with their debts individually.
• The couple might have the option to file for joint debt relief.

The key is communication and exploration of your options. Marital debt issues can get complicated, especially if a divorce or relationship breakdown is also part of the equation. For advice on how to deal with the debt, contact a Licensed Insolvency Trustee for a free, confidential consultation.

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