Joint Debts and Consumer Proposals: What You Need to Know

TL;DR

Filing a consumer proposal affects joint debts in a specific way: your obligation is included in the proposal, but your co-signer or joint debtor remains 100% liable for the full debt. The creditor can and likely will pursue them for the outstanding balance. Spouses with substantially similar debts can file a joint consumer proposal to address their shared obligations together. Understanding these dynamics before filing is critical to avoiding surprises for yourself and those connected to your debts.

How Joint Debts Work in a Consumer Proposal

When you file a consumer proposal, all your unsecured debts are included — including your portion of any joint debts. However, the Bankruptcy and Insolvency Act (BIA) is clear: your proposal only binds creditors with respect to your obligations. The co-signer's obligation is completely separate.

What this means in practice:

• Your portion of the joint debt is included in your proposal
• The Stay of Proceedings protects you from collection on the joint debt
• The co-signer receives no protection from the Stay of Proceedings
• The creditor can (and typically will) pursue the co-signer for the full outstanding amount
• The co-signer's credit may be negatively affected if the account goes into default

This is one of the most important — and most frequently misunderstood — aspects of consumer proposals.

Common Joint Debt Scenarios

Joint Credit Cards

If both names are on the credit card account (joint account holders), both are equally responsible for the full balance. If you file a proposal:

• Your obligation is included in the proposal
• The other account holder remains liable for the entire balance
• The credit card issuer may close the account or demand payment from the co-holder

Co-Signed Loans

If someone co-signed a loan for you (or you co-signed for them):

• The person who files the proposal is protected by the Stay of Proceedings
• The co-signer is not protected and can be pursued for the full loan balance
• This is true regardless of who primarily used the borrowed funds

Supplementary Credit Cards

If your spouse has a supplementary card on your credit card account:

• The supplementary cardholder is generally NOT liable for the balance — only the primary cardholder is responsible
• If you are the primary cardholder and file a proposal, the supplementary card is cancelled
• If your spouse is the primary cardholder and you are the supplementary cardholder, their filing does not create any liability for you

Joint Mortgages

Mortgages are secured debts and are not included in a consumer proposal. Both parties continue to be responsible for the mortgage regardless of who files a proposal. Your mortgage payments continue as normal.

Joint Lines of Credit

A joint unsecured line of credit is treated like any other joint unsecured debt. If you file a proposal, the other party remains liable for the full balance.

Joint Consumer Proposals for Spouses

The BIA allows spouses or common-law partners to file a joint consumer proposal under specific conditions:

Eligibility requirements:

• You must be married or common-law partners
• Your debts must be "substantially similar" — meaning you share most of the same debts
• Your combined unsecured debts (excluding mortgages) must not exceed $500,000

Advantages of a joint proposal:

• One set of monthly payments instead of two
• One filing fee structure instead of two
• Simplified administration for shared debts
• Creditors who hold joint debts vote once instead of in two separate proceedings

When a joint proposal makes sense:

• Most of your debts are jointly held (joint credit cards, co-signed loans)
• Both spouses have debts that need to be addressed
• Your combined debt is more manageable as a single filing

When separate filings are better:

• One spouse has significantly different debts
• One spouse has assets they want to protect differently
• One spouse may not need to file at all

Your Licensed Insolvency Trustee will advise on whether a joint or separate filing is more beneficial.

Protecting Your Co-Signer

Before filing a consumer proposal with joint debts, consider these steps:

1. Inform your co-signer before filing. They deserve to know they may face collection activity.
2. Discuss options with your LIT. There may be ways to structure the proposal that minimize the impact on co-signers.
3. Consider whether the co-signer should also file. If both parties are in financial difficulty, a joint proposal (for spouses) or separate proposals may be the most practical solution.
4. Explore whether you can continue paying the joint debt. In some cases, you can exclude a specific debt from the proposal by continuing to pay it — but this must be done carefully and with your LIT's guidance.

Impact on Your Spouse's Credit

A common concern is whether your filing will affect your spouse's credit. The answer depends on their involvement:

• Joint debts: If the joint debt goes into default because of your proposal, your spouse's credit is affected
• Individual debts: Your spouse's individual debts and credit score are completely unaffected by your filing
• Credit report: Your proposal appears only on your credit report, not your spouse's (unless they co-signed debts)

Use our consumer proposal calculator to understand potential payments, and explore all debt relief options before deciding.

FAQ

Can I keep paying a co-signed debt and exclude it from my proposal? Technically, all unsecured debts must be disclosed in a proposal. However, you can continue making voluntary payments on a co-signed debt to protect your co-signer, as long as these payments do not compromise your ability to fulfill the proposal terms. Discuss this strategy with your LIT.

What if my ex-spouse refuses to pay their share of joint debt after a divorce? A divorce agreement or court order assigning debt responsibility does not change your legal obligation to the creditor. If you are both on the debt, the creditor can pursue either party regardless of what the divorce order says. Filing a consumer proposal can address your liability, but your ex-spouse remains responsible for the full amount.

Does my spouse have to know I filed a consumer proposal? Your LIT is not required to notify your spouse unless they are a creditor or co-debtor. However, if you have joint debts, your spouse will likely be contacted by creditors seeking payment. In practice, transparency with your spouse is important for managing the financial implications.

Can my parents be affected if they co-signed my student loan? Yes. If your parents co-signed your student loan and you include it in a consumer proposal (applicable if you have been out of school for 7+ years for government loans, or any time for private loans), your parents remain fully responsible for the loan balance. The lender will pursue them for payment.

Sources

• Bankruptcy and Insolvency Act (BIA), R.S.C., 1985, c. B-3
• Office of the Superintendent of Bankruptcy Canada (OSB)
• Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
• Financial Consumer Agency of Canada (FCAC)