You might wonder how a consumer proposal could affect your love life. There’s nothing scarier than putting your partner’s financial health at risk because of the debts you have. So put your mind at ease by reading everything you need to know about if/how a consumer proposal can affect your partner.
Understanding Joint Debts
Before worrying about your or your partner’s consumer proposal, it’s important that you understand how joint debts work. If your partner has ever co-signed or guaranteed your loan, then you’re both responsible for that debt. However, that doesn’t necessarily mean that you’re each responsible for half of that debt. If you can no longer make your debt repayments, then the responsibility will fall on your partner to make them in full. You’re therefore not responsible for only 50% of the debt. If you or your partner defaults — fail to make the required payments — then creditors will look to the non-defaulting partner to make the full payment.
If you’re unsure of your obligations, it’s best to contact your creditor. For example, some credit card companies may make you liable for a secondary card for which your partner is the primary cardholder. Always read the fine print, or ask your creditor to explain their policies.
However, married or not, you will not have any responsibility for your partner’s personal debts. Creditors will never have the right to contact your partner for debts that are only under your name. If you file a consumer proposal due to your own debts, your partner will not be affected. They will only be responsible for the debts that are in their name.
The Intricacies of a Consumer Proposal
Of course, your partner will not be affected by a consumer proposal comprising of your own debts. However, there are some intricacies that come with it. First, what is a consumer proposal?
A consumer proposal is a debt solution that lets you negotiate a debt reduction. This debt will then be spread over the course of several years. Instead of paying what you owe, a consumer proposal takes your budget and personal situation into account in order to determine what you can pay. Oftentimes, your debts can by reduced by up to 70%. In order to file a consumer proposal, you must work with a licensed insolvency trustee. Only an LIT will have the power to file and administer them. In your consumer proposal, you can only include unsecured debts— lines of credit, credit cards, personal loans, payday loans, etc. — that you are liable to pay. Debts you are liable to pay include both your own debts as well as joint debts.
So, how will your partner be affected by your consumer proposal if you have joint debts? Your partner may be affected if you file a consumer proposal for debts you are both liable for. If you file a consumer proposal on your own, the responsibility of paying back the debt you were both liable for will fall solely on your partner. Therefore, they will have to pay the entire debt minus the amount the creditor will receive as part of your consumer proposal. You, as the one who has filed the consumer proposal, will henceforth be protected from collection actions, whereas your partner will not be.
In short, a consumer will affect your partner only if you have joint debts. They will:
- Assume responsibility of the joint debts.
- Have to pay off the entire amount minus the amount your creditor will receive from your consumer proposal.
- Not be protected from collection actions.
Alternatives to Individual Consumer Proposals
Depending on the amount of joint debts you have, it may make sense to ask your licensed insolvency trustee to draft up a list of better solutions that are available to you. Some of these include:
A Joint Consumer Proposal
Instead of only one of you filing a consumer proposal, you could do a joint consumer proposal. This would consolidate all of your combined debts — both the debts that you have jointly as well as your personal debts. Additionally, if you have a lot of debts, then both of you would save a lot of time and money paying them off with a joint consumer proposal, instead of having one of you be responsible for the rest of the debts. After you’ve paid off all of your creditors, both of your debts will be discharged.
Furthermore, another great benefit to filing a joint consumer proposal is that none of your creditors will have the right to contact or harass you to pay off your debts. The minute your consumer proposal is accepted, a stay of proceedings will be put into effect, and harassment will come to an end. Instead, all calls will be handled by your trustee.
However, one important factor to consider is that filing a joint consumer proposal will affect both of your credit scores. In effect, you will both have a credit rating of R7 that will remain on your credit report for three years after the debt is discharged. As a result, if you’re planning on borrowing money for a home or any other big life event, a joint consumer proposal can make that difficult.
Two Individual Consumer Proposals
If you and your partner don’t have many joint debts, but you do have quite a bit of separate debts, then it might be a good idea to consider both filing your own consumer proposals. These individual consumer proposals will include shared as well as respective debts. You will both reduce your own debts, and won’t held responsible for the totality of the joint debts. Just as with a joint consumer proposal, however, you will have to wait until your credit scores are in the clear before borrowing money again.
Consumer Proposal and Personal Bankruptcy
In terms of saving money in the long run, it may make sense if one of you files for bankruptcy and the other files a consumer proposal. One of you will get completely discharged from debts and the other will lessen their amount of debts. This way, one of you will have a credit rating of R9 for 6 years after receiving your bankruptcy certificate of discharge, and the other will have a credit rating of R7 for 3 years after consumer proposal completion. Doing so can greatly reduce your amount of debts. The sooner you get rid of debts, the sooner you can start fresh!
However, before making up your mind concerning your debt relief solution, contact a licensed insolvency trustee. A trustee will help you understand what options are available to you. They will also show you best course of action is depending on your personal situation. You can rest assured that you will be making the right decision and finally free yourself of all your debts.