Are the assets of the debtor’s spouse affected?
The bankruptcy affects only the person who goes bankrupt. However, if the consumer debtor conveys or transfers property to his or her spouse for a value that is lower than its fair market value within one year prior to bankruptcy, then it is likely that the trustee, or the creditors in certain circumstances, will proceed to set aside the conveyance or transfer. The trustee can attach those assets that have been conveyed or transferred to the spouse or any other person who has not paid fair market value. These are called settlements, fraudulent preferences and reviewable transactions under the Bankruptcy and Insolvency Act. There is also a provincial legislation that is similar to these remedies.
If there is a discharge hearing, the bankrupt is required to submit a statement of income and expenses on a monthly basis to the trustee. The statement of income usually includes the net income of the spouse. In fixing an amount to be paid by the bankrupt as a condition of discharge, the court looks at the combined income, the expenses and the Superintendent’s standards. As a result, it is possible that some of the spouse’s income will be used in making payments to the estate even though the spouse is not bankrupt.
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