Separation & Joint Debt
Facing a separation or divorce is one of the most stressful events one can face in a lifetime. When the burden of matrimonial debt is added to that stress, it can be overwhelming. When faced with this situation many individuals feel lost and are unsure of the best approach to taking control of their debt issues.
The first thing that needs to be determined is the amount of debt each person is carrying individually. It is important to understand that secondary cardholders are equally responsible for the full balance of the amount owed to a creditor. Once you determine who is legally responsible to repay the debt according to the credit agreements, you can then look at a plan to get that debt repaid.
Often a separation agreement will assign each party a portion of the matrimonial debt, based on several factors. It is recommended that you remove your name from any debt that you are not taking on in the separation agreement. However, sometimes the creditor will not remove a person’s name from the account as the co-borrower may not qualify to carry the debt on their own.
In the eyes of the creditor, you may be liable to repay a debt owing to them even if your spouse agreed to pay it in the separation agreement. This creates a problem with joint debt, as if the party that is supposed to pay the debt under the separation agreement defaults, then the other party will have their credit affected and will be subject to collection activity.
Before this becomes an issue, it is ideal if both parties can realistically look at their expected income and expenses after their separation to determine what money they have available to repay their debts, if any.
Filing Bankruptcy or a Consumer Proposal
If both individuals are unable to carry the debt then it makes more sense to deal with the matrimonial debt in consultation with a licensed professional.
You may want to contact a Bankruptcy Trustee or Consumer Proposal Administrator who will help assess the debt issues to determine the best course of action for each individual based on their income situation after the separation. The Trustee will consider each person’s income and household expenses, any support payments made and received and the total amount of debt that is held both jointly and individually. The Trustee will also look at any matrimonial assets to determine if these assets affect their recommendation.
There is no right or wrong time to seek help for your debt struggles when you are facing a separation. However, if debt is a big issue in your separation, seek assistance early in the process. Dealing with your debt issues at the time of your separation can save years of stress and anxiety resulting from trying to maintain debt payments as a single household.
The following website lists Bankruptcy Trustees and Consumer Proposal Administrators across Canada that offer Free Consultations: www.consumerproposals.com
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