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Questions & AnswersCategory: QuestionsBankruptcy and Divorce Issues. What happens with bankruptcy after separation?
AvatarRayann asked 6 days ago

Bankruptcy and Divorce Issues. What happens with bankruptcy after separation?

asked November 5, 2020 by Anonymous

My husband and I separated in March. I moved out on my own in June. We have kept my name on the house for our daughter, so she has a place to be with him.  He now tells me he is having trouble making ends meet and he may want to claim bankruptcy.  How will this affect me if my name is on the house?  I don’t want to claim bankruptcy.

1 Answers
Debt.ca Staff Debt.ca Staff Staff answered 6 days ago

Is your ex facing bankruptcy after separation, but you are unsure of what will happen to your financial well-being? We asked an expert in the field his opinion on the matter.

Dealing with bankruptcy after separation varies according to the following scenarios.

Victor Fong, a Licensed Insolvency Trustee explains three scenarios in which separated couples must consider when one wants to file bankruptcy.

Scenario 1:

The house was always under your name, and your husband didn’t contribute to any equity in the home. For example, if he didn’t contribute to the down payment or mortgage payments. In this situation, his bankruptcy will not affect you or your home (unless you co-signed any of his debts; in that event, you’re responsible for any debts he couldn’t pay).

Scenario 2:

The house was always under your name, but both you and your husband contributed to the home’s equity (i.e., you both contributed to the down payment and mortgage payments).

To the extent your husband contributed to the home’s equity, this may be considered an asset of your husband’s bankruptcy estate, which the Trustee may be required to realize. Before that, the Trustee would consult with your husband’s creditors and legal counsel. They would weigh the costs versus benefits of proceeding in any legal action against you to recover your husband’s contribution to the equity.

Scenario 3:

The house was under both your names and the title to the home was transferred to you alone within the preceding 5-year period.

In this case, the transfer may be considered a “reviewable transaction” to defeat your husband’s creditors. That is, if at the time of transfer, your husband had no ability to pay his debts in full without his share of the equity in the home. Such a transaction can be set aside by a Court upon the application of a Trustee. Upon doing this, the Trustee would have a duty to realize your husband’s share of the home’s equity.

Victor Fong, of Fong and Partners, provided the expert answer to this question. 

Related to: Bankruptcy after separation – Dealing with the Mortgage and More

answered 6 days ago by Debt.ca Staff

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