Does Bankruptcy Affect My Spouse?

If you are unable to pay your debts as they fall due you are insolvent. Your creditors might petition for your bankruptcy or you might elect to apply to make yourself bankrupt to draw a line under your current situation so that you can try and move on. 

This article explains how your bankruptcy could impact your partner and any joint assets. For more information, contact a member of our commercial litigation team at Helix Law today and we will be happy to assist you. 

Can Bankruptcy Affect a Spouse?

In England and Wales, bankruptcy only applies to the insolvent person subject to the bankruptcy order.

The bankrupt will lose control over their assets and a Trustee in Bankruptcy (TiB) will be appointed to manage and realise the bankruptcy estate for the benefit of your creditors. 

Bankruptcy is a bit like a financial death where the TiB acts as a sort of executor, but instead of drawing and realising your estate for the beneficiaries under your will, he draws in and realises your estate for the benefit of your creditors. 

Joint Debts and Bankruptcy

When two parties take out a loan together, they usually become jointly and severally responsible for repaying it. Therefore, if one party cannot pay (because they are bankrupt), the lender will look to the other party repay the loan in full. 

How Does Bankruptcy Impact a Family Home?

What happens to the family home is one of the primary considerations when an individual becomes bankrupt. Whether the TiB realises and sells your home depends on several factors: 

• Value: The trustee will assess the equity in the home before deciding whether it’s worth realising. They’re much less likely to sell the property if it has low or negative equity. 
• Sole Ownership: The TiB can’t access the property if the bankrupt is not a legal owner of it, unless he can persuade the court that the bankrupt has a beneficial interest in the land, in which case his share becomes a realisable asset. 
• Joint Ownership: Where parties own property jointly, the TiB may try to realise the bankrupt’s share by obtaining an order for sale. They would usually be open to the spouse buying the bankrupt’s share from the bankruptcy estate. 
• Children: If spouses have minor children who live in the family home, the TiB may delay the sale so the children don’t experience undue hardship. 

If the TiB decides to take action to force a sale of the family home, the non-bankrupt spouse will be entitled to their share of the net proceeds of sale. 

How Does Bankruptcy Affect a Spouse’s High-Value Assets?

Any high-value assets your spouse owns solely will typically be unimpacted by your bankruptcy. However, if you transfer high-value items to your spouse in anticipation of insolvency, the trustee may investigate these transactions to determine if you made them to avoid liability. In this situation, the TiB can still recover the relevant assets and bring them back into the bankruptcy estate so they are available for creditors. 

The following transactions will likely result in further investigation: 

• Transfers of property or high-value items for less than market value. 
• Significant gifts or payments. 
• Opening joint accounts or investment portfolios. 

Maintaining records of all transactions and seeking expert advice before making transactions is crucial. 

Final Thoughts

While bankruptcy is an individual legal process, it can have significant consequences for a spouse, particularly regarding joint debts and shared property. Understanding how this situation impacts your family home and other high-value assets is crucial to navigating an already stressful period. 

We usually get involved in trying to assist in avoiding a bankruptcy order being made in the first place. If you or your spouse are facing financial difficulties, contact Helix Law today for expert guidance and we will be happy to assist you. Our solicitors provide tailored advice to give you peace of mind and help you protect your interests. We act nationally and would love to help you.