Are you curious about how bankruptcy after divorce works in Canada? Financial problems in a relationship can cause marital breakdowns. Also, marital problems and divorce are some of the biggest causes of financial bankruptcy.

In one way or the other, both financial and marital problems are quite related and in some cases, it can be the cause of each of these problems. Often there are severe financial issues long before the divorce which leads to stress, arguments, and eventually the degradation of relationships.

The resulting expense of a divorce can be quite extensive with existing debt, disputes over the division of marital assets, divorce consultation, mounting legal fees, lost time from work, lost wages, emotional therapy, etc.

Understanding Bankruptcy and Divorce in Canada: An Overview

Even after all this is done and the entire stress of divorce is finally over, there are still the expenses of maintaining the current two households, such as costs of childcare and custody, disputes over who pays which bills; and all this with the same income that you had when you were together.

Such situations among ex-spouses can often lead to bankruptcy in Canada, particularly if he/she does not have much income to deal with all these financial demands.

How Does One Spouse Affect the Other After Divorce?

If a spouse is unable to meet all the expenses after a divorce and wishes to file for bankruptcy, then he/she does not need the consent of the other spouse. This means that the creditors can collect the entire overdue amount from both or either debtor even without the other spouse being aware of the whole bankruptcy situation.

In other words, if one spouse is bankrupt and is not able to pay the creditors, then the creditors are legally authorized to collect the entire amount of money from the non-bankrupt spouse.

The Impact of Divorce on Financial Stability: Why Many Consider Bankruptcy

This will result in the money collectors going after the remaining spouse who is not bankrupt. If the spouse was not aware that their ex had filed for bankruptcy, then they would be quite shocked to receive a call from the debt collector or when they are sent a Statement of Claim for the unpaid debt.

They will find that they are responsible for even their ex’s debts notwithstanding the initial divorce agreement.

It will often end up with the other spouse filing an assignment in bankruptcy as well because most of the time in Canada, one spouse alone won’t be able to pay off their ex’s portion of the debt as well.

How does Bankruptcy affect alimony and Child Support?

The child or children require the consistent financial support of both their parents, that is even if one parent is struggling with financial debt, he/she is still obliged to pay for child support. Therefore, even if the spouse has filed for bankruptcy, the child support payments remain in effect and the parent must continue to pay.

The spouse may be eligible to have their support lowered by the court to a lesser amount. To request a reduced amount for child support, the parent will have to prove to the court that they cannot meet the current obligation due to financial stress such as unemployment, reduced income, or any other circumstance.

Affecting Your Assets

The effect of bankruptcy on your assets will be entirely based on what came first: the bankruptcy or the divorce. If the divorce or separation took place before filing for bankruptcy, and if the assets were transferred to the spouse because of a legal separation agreement or court order, then bankruptcy will not affect those assets.

However, If the spouse had filed for bankruptcy even before the divorce or mutual separation, then the assets will be considered as a part of the bankruptcy estate and all payments to creditors come from this estate.

Also, keep in mind that how bankruptcy will affect your assets will depend on your province in Canada’s exemption rules regarding which assets are exempt from seizure.

Bankruptcy After Divorce in Canada – Your Joint Debts

During their time together, married couples often incur joint debts to purchase expensive things such as homes or vehicles. And since it is a joint debt, both spouses will be held responsible for repaying the loan.

They can pay the debts together as long as they are married because both spouses sign the debt. But in the case of a divorce, the amount owed to repay joint debts will be divided evenly between each spouse.

If one spouse files for bankruptcy and he/she is unable to pay their share of the debt, then the other spouse will have to pay it. This is because both spouses are 100% liable for the joint debts as they were both responsible before the divorce for taking the loan.

By filing for bankruptcy, your ex will have to pay your portion of the amount because a divorce does not absolve you or the ex from your financial commitments and obligations.

Your Co-signed Debts

Similar to joined debts, even in co-signed debts, both spouses are liable for the total amount owed. Even if one of the spouses files for bankruptcy, the other person will be held responsible for the ex’s debt.

Despite being legally divorced and having a legal separation agreement that says you and your ex will split the debts evenly, the spouse is still responsible for paying off the debt.

Because the entire legal agreement that you and your ex made during the divorce process is completely between you both; not between you and the lender.

So even if one spouse cannot pay the other has to pay the complete amount and only the lender can release you or your ex from a co-signed loan or joint debts.

Bankruptcy After Divorce in Canada Conclusion

If you know that your bankruptcy can critically affect your ex-spouse and make them financially unstable as well, then you can initially discuss with them and file for a joint bankruptcy or joint consumer proposal to remove combined debts.

This is not an uncommon method in Canada and several family lawyers are highly proficient in dealing with filing for bankruptcy even before or after the divorce.

You can also consult a trustee or a family lawyer, to help you better decide if you should both file for bankruptcy or whether a consumer proposal for either spouse is the best option to terminate your divorce debts and move forward without the weight of those debts.

We hope you found this guide on bankruptcy after divorce in Canada helpful.