Consumer Proposal in Toronto

My Wife Has Made a Huge Mistake

A READER ASKS:

I’ve always been a debt averse person and very conservative with my money. I don’t make a substantial income I grossed $57,000 in 2018 and support my children (1 year and 5 years) and my wife who is currently a stay at home ma, and a great one at that.

When my wife and I were married in 2014 we made a joint bank account (added her to my account) and we share our income and expenses freely and equitably. Since then (with a few minor setbacks) we have been able to accumulate $10,000 in savings in our RBC e-savings account, its not much but it took a lot of honest work and frugal living to achieve. We are very proud of this.

Last night my wife woke me up around midnight and tearfully admitted that she has let her debt get out of control. I knew that my wife had outstanding student debt totaling around $15,000 and I have been helping her make payments on this while she has been at home with the kids without an income.

As I was trying to reassure her that we would be fine until she revealed to me that it was worse than I thought. That she had maxed out two credit cards and numerous lines of credits that had been offered to her and that she has dug herself into a pit of approximately $50,000 in debt.

Needless to say I was shocked, disappointed, and most of all I feel angry and betrayed. Her irresponsibility has most certainly destroyed or significantly postponed our plans for the future. But I won’t get into the relationship side of things as we are dealing with that as best we can. Please do not respond with judgement about my wife’s poor decisions. She knows, I know. I trusted that she was responsible financially as we have a loving and trusting relationship and are aligned in our goals for the future. She feels like shit obviously so we don’t need to go there. She learned this behavior from her mother who has been bankrupt numerous times in her life.

At this point she is booking appointments with debt counselors and potentially a lawyer to discuss bankruptcy. Ultimately I have declared this is her responsibility and I will be separating myself financially from her if possible. It is her mess to clean up and she has agreed to finally confront this and take care of it for her family’s sake.

My main concern is that we have a joint account. My credit is spotless and our (realistically ‘my’) savings may be compromised by the decisions we make going forward.

At this point my intuition is to open a new bank account in my name and move all of my income and credit cards (and child benefits) to this before beginning the process (I am personally debt-free). Unfortunately I understand that moving our savings may constitute fraud as she is has access to this account as well.

Truth be told, I’m scared, this is the situation I have done my best to avoid my whole life by being responsible with money and here it is, imposed on me by a lie of omission. I don’t know how to deal with this guys, please help.

TL;DR:

My wife lied to me about her irresponsible spending and racked up $50,000 in consumer debt. We have a joint account and savings. She is proceeding with counselling and potentially declaration of bankruptcy. My credit rating is immaculate and our savings are very important for our future, we don’t want to lose these. What can we do?

WE RESPOND:

In reference to the following sections of your post:

Ultimately I have declared this is her responsibility and I will be separating myself financially from her if possible. It is her mess to clean up and she has agreed to finally confront this and take care of it for her family’s sake.

Good. For what it’s worth, I always advise couples (married or otherwise) too keep their finances completely separate from the outset of the relationship. Separate bank accounts, separate financial assets and separate debts. Sure, it’s not “romantic” but it’s hard-nosed and pragmatic.

I’m going to even go further than this: if you’re going to enter into a long-term relationship with someone, have them consent to a background check before tying the knot – criminal background check, credit history, employment history, etc. Again, not “romantic” but it could save everyone a lot of grief further down the road.

At this point my intuition is to open a new bank account in my name and move all of my income and credit cards (and child benefits) to this before beginning the process (I am personally debt-free). Unfortunately I understand that moving our savings may constitute fraud as she is has access to this account as well.

Correct – you have a joint RBC account with $10,000 in savings. If you were to transfer these funds to your own account prior to your wife filing for bankruptcy, this would constitute what is called a “fraudulent conveyance” under the Fraudulent Conveyances Act of your province (each province has a similar law). This Act is so-named because you have the intent of “defrauding” your wife’s creditors by moving her assets from your joint account to an account in your name only so the money is out of the reach of her creditors. Her Licensed Insolvency Trustee can apply to Court and have this transfer set aside by obtaining an Order requiring you to pay these funds to the Trustee for the benefit of her creditors in her bankruptcy proceeding. Similarly, this transaction can also be set aside by a Court under the Bankruptcy & Insolvency Act under a provision called Transfer At Undervalue, which effectively works the same as the Fraudulent Conveyances Act.

The ideal situation for your wife would be for her to settle the $50,000 debt through a proceeding under the Bankruptcy & Insolvency Act called a consumer proposal. She can try to settle for (let’s say) $24,000 paid in 60 monthly installments of $400 per month. Why is this ideal? Because unlike a bankruptcy, a consumer proposal doesn’t affect her assets (i.e., her share of the $10,000). If her proposal is accepted by her creditors, then the $10,000 is a non-issue so long as she maintains her proposal payments of $400/month.

Now, she’s not working but you have kids, so I assume that she must be getting a Canada Child Benefit payment, correct? She could possibly use this to fund her consumer proposal.

You have no joint debts, so your wife’s proposal won’t have any effect on you whatsoever.

Hope this helps….

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