February 5, 2025
Knowing how filing a consumer proposal will affect your spouse is crucial for couples considering it as a debt relief option.
Choosing to file a consumer proposal is a challenging decision for anyone to make. For couples, it can be even more challenging. Not only can it put a strain on a relationship, but many also worry they’ll negatively affect their partner's credit if they file one.
Given the interconnected nature of finances within a marriage or common-law relationship, these concerns are valid. We are here to examine whether filing a consumer proposal can have any adverse effects on the financial stability of the other spouse.
A consumer proposal is a formal debt settlement agreement between you and your creditors, assisted by a Licensed Insolvency Trustee (LIT). It allows you to negotiate to pay back a portion of your unsecured debts over a certain period of time, typically five years. Unsecured debts include debts such as credit cards, personal loans and lines of credit.
A consumer proposal offers several benefits for debt relief:
Only a LIT can file a consumer proposal on your behalf. You can’t do it yourself. LITs are regulated by the federal government of Canada which ensures they adhere to strict ethical and legal standards providing expert guidance to help individuals navigate and resolve financial challenges.
Filing a consumer proposal is a big decision to make for anyone is a relationship where the finances are likely connected.
A Licensed Insolvency Trustee will examine your full financial situation before filing a consumer proposal on your behalf. There are a variety of factors they will consider, some of which will concern your spouse.
Having high-value assets that you and your spouse have joint ownership over, such as a house, can increase the amount you’ll be expected to pay each month as part of a consumer proposal.
Assets your spouse has sole ownership of will not be considered in this process.
If your spouse has a high income, you may be asked to pay more each month for your proposal by creditors. The reason is that your overall household can afford it.
Filing a consumer proposal does not automatically affect your spouse.
When you take out a loan and the only name on the contract is yours, you are entirely responsible for paying the money back.
If the debts included in the proposal are for loans you took out on your own, then you are the only one responsible for their repayment. Filing a consumer proposal will affect your credit rating by dropping it down to an R7, but it will not have any impact on the credit rating or score of your spouse.
Essentially, filing a consumer proposal for debts you are alone responsible for will have no effect on your spouse’s credit rating, score, or ability to access credit.
Filing a consumer proposal will not obligate your spouse to pay any money, although they may choose to assist you with payments if they desire.
There is, however, one scenario where filing a consumer proposal will affect your spouse, and that’s joint debt.
Joint debt refers to financial obligations shared by two or more individuals, typically spouses, who are equally responsible for repayment.
An example of joint debt in the context of spouses is a joint credit card. When spouses apply for and use a joint credit card, they both share responsibility for paying off the balance on the credit card.
This means that if one spouse makes a purchase using the card, then both are equally liable for paying off the debt.
Even if one spouse primarily uses the credit card more than the other, both are legally responsible for the debt.
The finances of many couples are combined into joint bank accounts, this often adds a layer of complexity when one member of the couple choses to file a consumer proposal.
Couples with joint accounts often fall into debt together, meaning there is likely little savings in the account when the decision to file for a consumer proposal is made.
If only one of you is filing for a consumer proposal, it is recommended that you close the joint account and each open new separate and individual bank accounts at another bank before officially filing the consumer proposal.
This way, the spouse not filing the proposal will have easy access to money in an account that will not be affected by the consumer proposal process.
Yes, you can include unsecured joint debt in a consumer proposal. If you do, your spouse's credit rating will not be affected, as long as regular monthly payments continue to be made. But there are other impacts.
If you include joint debts in your consumer proposal, your spouse's legal obligation to repay the debt remains. However, the amount your spouse owes will be reduced by the portion received from the monthly payments you make under the proposal.
Essentially, your spouse's responsibility for the joint debt is reduced as your payments are made.
Filing a joint consumer proposal is possible but should not always be done.
However, if you and your spouse have a high amount of debt that you are jointly responsible for, then filing a joint consumer proposal may be a good option for you.
A joint proposal has both its pros and cons.
Pros
Cons
If you and your spouse do not have lots of joint debt, then it makes more sense for you to file a consumer proposal on your own. This will ensure that one of you continues to have easy access to credit.
If you’re unsure whether it would make more sense for you and your spouse to file a consumer proposal jointly or if you should go it alone, a Licensed Insolvency Trustee can help. They can analyze your full financial situation and help you understand the pros and cons of filing a proposal on your own or jointly.
February 5, 2025
Knowing how filing a consumer proposal will affect your spouse is crucial for couples considering it as a debt relief option.
