If your spouse has accumulated debt, you may fear becoming responsible. What is it really?
A reader recently asked us whether she could be held responsible for her spouse’s debts and whether she would have to pay them back. A worrying question as this could not only put your finances at risk, but could also have a negative impact on your credit report.
Sophie Desautels, first senior director and licensed insolvency practitioner at Raymond Chabot, is reassuring from the start. “The basic rule is that everyone is responsible for their own debts. Only common debts can be shared,” she says.
She adds that special caution is required in two situations: when you assume a debt taken on by your spouse or when you share a debt with them.
Assumption or guarantee for the debts of the spouse
If your spouse has taken on a debt, for example a loan, and you have taken on it or acted as a guarantor, in this case you will be fully responsible if he or she does not repay the debt to the creditor. “If your spouse defaults on payments, you are jointly and severally liable for the debts,” explains Sophie Desautels.
Your spouse has applied for a line of credit and you have acted as guarantor or guarantor? If he goes bankrupt, he would then be freed from this debt, but be careful because that won’t be the case with you. “In the eyes of creditors, you would still be 100% – not just 50% – responsible, and they could therefore turn against you to claim their debts,” explains Sophie Desautels.
Be a co-borrower
If you bought a car with your spouse, you are considered a co-borrower. Your name as a buyer will appear along with that of your co-borrower in the Register of Personal and Real Property Rights (RDPRM). “Here, too, the two co-borrowers are 100% liable for the debts taken on and not just 50%, as one might think,” explains Sophie Desautels.
Also keep in mind that your credit report could be affected if your spouse falls behind on their payments.
Worse, if the defaulting co-borrower were to declare bankruptcy or file a consumer proposal and they were discharged from the vehicle debt, you would not be discharged and would be liable for 100% of the debt.
The mortgage loan
If you buy a house with your partner, things get complicated in the event of bankruptcy. “If one of the two spouses goes bankrupt, there is equity in the house and the couple is in a civil partnership, the other could have to pay an amount as part of the bankruptcy to buy back the part of the property.” “Leaving the house and “To be able to keep it,” warns Sophie Desautels.
If there is equity, the trustee will recommend the consumer proposal instead to avoid such a situation and preserve the property.
However, if there is no equity, the home can be kept despite bankruptcy as long as mortgage payments are current and repayments are made regularly in accordance with the terms of the loan.
ADVICE :
· Your spouse asks you to provide a surety or guarantee for a loan taken out in his or her name? Before signing, think carefully about what it will mean for you if he doesn’t pay his debts.
· Remember: If the lender requires approval of the loan or requires a guarantee, it means that the borrower’s credit rating is not good enough. This is a signal that you should consider in your thinking. At the very least, a good conversation with your spouse about the reasons for their bad credit is necessary.
- Do you have an additional credit card on your spouse’s credit card account? In some contracts, even if you are not the primary owner, you may be held liable for the debt. Carefully review the contract between you to find out whether you would be jointly liable if the primary owner defaults on his obligations.