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Debt 101: The Peril Of Jointly-Held Debts

During my discussions with the folks I meet with each day around Toronto, one of the most common questions to crop up is the one about jointly-held debts, also known as “co-signing.”

A co-signed debt could be something as straightforward as your Dad agreeing to help out with your car loan so you can finally own an automobile that is truly yours. Or it could be as simple as your spouse receiving a secondary credit card in your name from his bank, and passing it along to you to use. Both of these are joint debts.

But what happens when one of the people who has that joint debt files for protection from their creditors (either a bankruptcy or a consumer proposal) or disappears, dies or ends up leaving Canada?

In those types of scenarios, the other joint debtor would end up being 100% responsible for the entire debt. That means the entire car loan becomes Dad’s problem to deal with if his daughter files for bankruptcy protection. Or that secondary credit card holder ends up on the hook for the balance owing on both credit cards.

Since many people using these types of credit are not aware of what rights and responsibilities they have once they agree to take on the debt, it can often come as a surprise to them when a creditor comes knocking, looking for repayment.

I have received more than a few anxious telephone calls from people I’ve helped file a personal bankruptcy or consumer proposal, upset because the credit card company or collection agency continues to call and demand repayment, despite the filing of the insolvency proceedings.

“You told me the calls would stop!” they say, frustrated by the constant letters and increasingly-demanding telephone calls they get each day (sometimes multiple times a day). “Why do they keep calling me?”

Since I know the filing of a proposal or a personal bankruptcy places a wall of legislation between the creditors and the person who has the debt, I’m often surprised when, months after a filing has taken place, those nasty calls and letter continue to besiege them. Until I find out that the debt was a jointly-held debt. “I didn’t know you needed to know that,” the debtor often exclaims. “I was the primary cardholder – doesn’t that mean the debt just goes away?”

Yes it does. For the person who filed for protection. But not for the spouse, friend or child of that person who jointly holds the debt. For the other person, the calls will continue to come until they, too, are forced to deal with the debt in some form.

So my advice to you about joint debt is this: Don’t have any (if possible). If you share a credit card, bank loan or line of credit with your spouse or family member, reduce your liability by removing yourself, or the other person, from the contract.

Play safe with credit by keeping your debts to yourself and let the other person deal with their debts on their own.