The effect personal bankruptcy will have on your husband or wife is a question regularly asked when we deal with clients who are considering both Divorce and Bankruptcy. In this article I will explain the complex situations which can occur. I have written this from a woman’s point of view to keep it simple and have tried to answer some of the questions which are often asked.
Does personal bankruptcy affect my husband?
If you file for bankruptcy, it may still affect your husband in many ways as when you are made bankrupt, your case is initially handled by an Official Receiver and then depending on what assets there are in your estate an independent Trustee in bankruptcy is appointed to deal with all the asset realisation and distribute those proceeds to your creditors.
Let me first say that the assets owned solely by your husband cannot be taken to pay for your debts.
Where joint assets are involved things can get pretty complication and can be quite overwhelming.
The family home in some cases becomes an asset in the bankruptcy irrelevant of who owns it and although you will not be evicted from your home some expert advice is needed to ensure that you are fully aware of the legislation, your rights and of course you will want to ensure that there is very little upheaval in the family due to your bankruptcy.
It is very important to take advice at an early stage before you even decide to file for bankruptcy so that you have a clear picture of what the Trustee can and can not do and what assets are legally caught under the bankruptcy estate.
How is the family home dealt with?
The main asset in most cases is the family home. The Trustee arranges for an independent valuation to be carried out on your family home and will determine after taking into consideration the mortgage and agents costs which need to be deducted from the possible sale value and works out what the estimated equity will be.
Normally the split in the equity is calculated on a 50-50 basis unless there are other documents to confirm that the property in owned in any other way. Maybe there is a trust deed or that you have invested significantly more funds into the property when it was purchased. These things will be considered by the Trustee in bankruptcy.
It is important that you review the figures prepared by the Trustee very carefully! Going back to my comment above about the possibility that you may have invested more money into the property brings me to talk about what is known as equity of exoneration. If you have already released some equity in the property to invest in a business which may have closed or gone into liquidation, then your husband can argue that you have already had some of your 50% of the equity in the property and that he should be entitled to more than 50%. This way of reviewing the equity is called Equity of Exoneration.
Once a full review of the figures has been carried put and you are absolutely certain that the figures prepared by the Trustee are correct then your husband can make an offer to the Trustee to purchase your share of the interest in the family home form the bankruptcy.
There is more information on our website about Equity of Exoneration.
Under current legislation the Trustee will allow a period of 12 months (the Trustee has up to 3 years to deal with the asset or commence possession proceedings) to come up with a third party offer, after which time he will need to start giving some consideration to realising the family home for the benefit of creditors. It is in the Trustees interest to deal with your husband making an offer as opposed to having to market the property for sale and pay agents costs and commissions which ultimately will reduce the funds available for creditors.
You must continue to make mortgage payments throughout and whilst negotiations are continuing with the Trustee.
How does bankruptcy affect a spouse’s assets?
The Trustee is not interested in everyday household possessions like furniture, TV, and other household items. If there is a car which is jointly owned, then again, the Trustee will be happy to deal with you. In relation to motor vehicles, you can keep a car if it is required for going to and from work and that it is not worth much more than £2,000.
There is also the issue of the Income Payments Agreement (IPA). The Trustee can apply for an Income Payments Agreement, if you have any surplus income, which can be used to make monthly payment for up to three years from your income. Whilst they cannot claim this from your husband, they can consider his income and the household running costs to work out what funds you have left and can afford to pay.
It is worth noting that any assets transferred to your husband prior to bankruptcy these may be able to be recovered by the Trustee as a Transaction at Undervalue (two-year time limit) or as a transaction defrauding creditor (no time limit). The Transaction at Undervalue is normally reviewed 5 years prior to the date of the Bankruptcy Order with connected parties and 2 years with unconnected parties.
How does bankruptcy affect a spouse’s credit rating?
Your bankruptcy should not affect your husband’s credit rating. However, as you are both listed as living at the same address then, it often has an effect on both parties’ ability to obtain credit.
If couples have joint assets, I would always recommend taking some professional advice before agreeing to a final settlement with a Trustee in Bankruptcy. It is a complex area of the law and it is important to make sure the agreed settlement is fair to all parties.
Next Steps
If you want to find out anything further about this topic then please feel free to call on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email vee@navigatebr.com
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
Leave a Reply