Answering Your Questions
It's not always easy to make the right decisions when it comes to personal finances. To help you navigate through, here are answers to questions sent by readers of this column.
Consequences to co-signing a loan?
Anne from Saint-Sauveur would like to know the possible consequences for her if she co-signs a loan for a loved one and how she can protect herself.
Remember that the non-payment of a debt often results from a person’s lack of financial capacity, not their unwillingness to pay. In most cases, it’s not that they don’t want to pay, but rather that they can’t.
The first question to ask yourself is: What would be the impact on your finances if the debt you co-signed defaulted? “If you can easily absorb the repayment without difficulty, then your decision to co-sign may be justified. However, if you are at risk of serious financial difficulties, you should refuse”, recommends Pierre Fortin, authorized insolvency trustee and president of Jean Fortin & Associates.
Furthermore, be aware that co-signing will affect your own borrowing capacity because financial institutions consider the co-signed debt as your own, even if it’s in someone else’s name.
“In all cases, open and honest discussion and reflection are necessary to avoid making a decision based on emotions, especially when it involves a loved one, as you may feel guilty or indebted to them”, advises Pierre Fortin. Think carefully before signing!
Can I transfer an asset to avoid paying my debts?
Étienne from Belœil wonders if the laws have changed since his parents’ time when it was possible to transfer assets to one’s spouse’s name to avoid seizure.
The fundamental principle behind the law is that debtors can take actions that disadvantage the rights of our creditors. Our assets serve as the “common pledge” for our creditors. This means that if we stop repaying our debts, they have the right to seize our assets.
Therefore, as long as you have good control over your finances and your income and assets are sufficient to fulfill your financial obligations, your creditors won’t complain about your actions. However, if you were unable to repay your debts because you transferred one or more of your assets to your spouse, creditors could challenge the transfer in court or seek restitution.
Can my financial problems affect my spouse?
Simon from Gatineau would like to know if the financial difficulties he has experienced in the past and his mismanagement of debts could affect his spouse’s credit report.
No. Each person who has used credit at least once in their life has their own credit report and builds their own credit history. Therefore, Simon’s late payments have no impact on his spouse’s credit report, whether they are married or not. However, if the late payments are related to a debt they co-signed together, the negative credit notation will be recorded in both reports, even if Simon’s spouse repaid “her share” of the loan.
What if Simon decides to file a consumer proposal or declare bankruptcy? Even in that case, his spouse will not be affected. However, if they have joint loans, those loans will be transferred to his wife’s name. If she makes the payments as stipulated in the loan agreement, there will be no consequences for her credit report.
Remember, if one spouse is experiencing financial problems, ignoring them and accumulating payment delays is not the solution, especially if there are joint loans involved. The most common mistake is to sweep difficulties under the rug and hope that time will magically solve everything.
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