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What Is Joint or Shared Debt and How Does It Work in Alberta?
Taking out a loan with a partner, sharing a credit card, or co-signing for a family member can help cover major expenses. But if payments become difficult or a relationship ends, it can be unclear who is still responsible for the debt.
For Albertans dealing with shared debt, the key is understanding the agreement with the lender. The responsibilities of joint borrowers, co-signers, and guarantors can differ, and one person's financial difficulties do not automatically remove another person's obligations.
What Is Joint or Shared Debt?
Joint debt is borrowing for which two or more people have legal responsibility under the same credit agreement. Common examples include:
A joint credit card or line of credit
A mortgage taken out by two borrowers
A personal loan signed by multiple borrowers
A loan with a co-signer or guarantor
Under many joint credit agreements, each borrower can be held responsible for the full outstanding balance, not just the amount they personally spent. The exact responsibility depends on the contract and applicable law.
Co-signed debt works differently. A co-signer agrees to take on legal responsibility under the loan agreement, but the terms determine when and how that responsibility applies. Before co-signing, it is important to understand what could happen if the primary borrower cannot make payments.
Being married or in a common-law relationship does not automatically make you responsible for every debt your partner takes on. Liability depends on factors such as the agreement, ownership, and applicable law.
Read our guide on whether you are responsible for your spouse's debt in Alberta for more information.
What Should You Check Before Sharing a Debt?
Before taking out a loan with someone else or agreeing to co-sign, read the credit agreement carefully. Make sure you understand who is responsible for repayment, whether you could be required to pay the full balance, and what happens if the other borrower misses payments.
Ask the lender how account statements and payment updates will be shared, and clarify how you can access account information. Knowing these details before signing can help you make an informed decision and avoid unexpected obligations later.
Who Is Responsible for Joint Debt After Separation or Divorce?
When a relationship ends, former partners may agree that one person will take over a shared loan or credit card. However, that agreement does not automatically change the lender's contract.
For example, a separation agreement may require one partner to make all payments on a joint line of credit. Unless the lender releases the other borrower or agrees to change the account, both people may remain legally responsible under the original agreement.
If you share a mortgage, credit card, or line of credit with a former partner, contact the lender to discuss what changes are possible. Refinancing or transferring the debt may be an option, but approval depends on the lender's requirements and the borrowers' circumstances.
Our article on what happens to debt during divorce or separation explores this situation in more detail.
How Does Joint Debt Affect a Consumer Proposal?
A consumer proposal is a formal legal process under Canada's Bankruptcy and Insolvency Act. It allows an eligible individual to offer creditors repayment of a portion of their unsecured debts, extend the repayment period, or both. Creditors must accept the proposal, and the repayment period cannot exceed five years.
An eligible unsecured line of credit or other joint debt can be included in a consumer proposal for the person filing. However, the proposal does not automatically release another borrower from their own legal obligations.
For example, if two people share an unsecured line of credit and one files a consumer proposal, the other borrower may still be responsible for the outstanding balance. The lender may pursue that borrower in accordance with the credit agreement and applicable law.
Some eligible individuals with substantially similar debts may qualify for a joint consumer proposal. Sharing a loan or being married does not, by itself, establish eligibility. A Licensed Insolvency Trustee can review the debts and determine whether a joint filing is appropriate.
What Happens to Joint Debt During Bankruptcy?
Bankruptcy addresses the debts of the person who files, but it does not release another borrower, co-signer, or guarantor from their separate legal obligations.
For instance, if the primary borrower on a personal loan files for bankruptcy, a family member who co-signed may still have to repay the debt under the agreement. The lender's rights against that person are considered separately from the bankrupt borrower's obligations.
Secured debts also need special consideration. If a joint mortgage is involved, bankruptcy does not automatically remove the lender's rights over the property. Decisions about mortgage payments, ownership, or selling the home should be made with a clear understanding of the loan terms and legal implications.
How SCB Debt Solutions Can Help
Shared debt can become complicated when a borrower loses income, misses payments, or separates from a partner. Knowing which obligations remain in place can help you make informed decisions before agreeing to changes or pursuing debt relief. It is also important to understand how your responsibilities may be affected if another borrower files for bankruptcy or a consumer proposal.
SCB Debt Solutions can review your debts and explain how a consumer proposal or bankruptcy may apply to your circumstances. A Licensed Insolvency Trustee can help you understand which debts may be included, what responsibilities another borrower may still have, and how different debt-relief options could affect your financial obligations. Having this information can help you consider your next steps with greater clarity.
Book a free, confidential consultation to discuss your questions and understand the available next steps. Speak with SCB Debt Solutions to understand how joint debts may be affected by a consumer proposal or bankruptcy, clarify your responsibilities as a co-borrower or co-signer, and explore the debt-relief options available to you.
FAQs on Shared or Joint Debt
Q1. What does joint debt mean?
Joint debt is money borrowed by two or more people who share legal responsibility for repayment. Examples include joint credit cards, personal loans, lines of credit, and mortgages.
Q2. What happens to joint debt after divorce?
Divorce does not automatically remove joint debt or change liability. Both borrowers generally remain responsible to creditors, regardless of separation agreements. The divorce settlement may determine how payments are divided between former spouses.
Q3. Can joint debt be included in a joint consumer proposal in Alberta?
Yes, eligible joint debts may be addressed through a joint consumer proposal in Alberta if both individuals qualify and meet the legal requirements. A Licensed Insolvency Trustee can assess eligibility and explain available options.
Q4. Does filing a consumer proposal affect my co-signer's credit score?
Filing a consumer proposal generally does not directly affect a co-signer's credit report. However, they remain responsible for the debt and must continue making payments. Missed payments or defaults can negatively affect their credit.
Q5. What happens if one joint borrower stops paying?
If one joint borrower stops making payments, the other borrower may be held responsible for the full outstanding balance. Creditors can pursue either borrower for repayment, potentially affecting both individuals' credit histories.
