How Does Bankruptcy Affect Your Spouse?

Financial difficulties can affect relationships in more ways than one. While the emotional and psychological toll can be considerable, so too can the financial implications if one partner becomes insolvent. If you or your partner are facing bankruptcy you may well be asking, ‘how does going bankrupt affect my spouse?’

Who is Responsible for Debt in Marriage?

It’s important to understand who is responsible for debt in a marriage and how does going bankrupt affect my partner or spouse.

Whoever takes on a credit agreement is responsible for repaying the debt. Even in marriage or de facto relationships, if your partner has signed a credit agreement you will not be held responsible for that debt, unless you have also signed the credit contract.

The caveat to that is joint assets if you or your spouse become bankrupt.

What Happens to Joint Assets in Bankruptcy?

When someone becomes bankrupt a trustee or receiver will be appointed to oversee and ultimately discharge the bankruptcy. The trustee will consider all the assets and income available to repay creditors. In the case of marriage, you will be wise to get expert advice to best understand how does going bankrupt affect my spouse and other questions you may have about bankruptcy.

If you and your spouse or partner share a home and the trustee wants to sell the home as an asset to repay creditors, they will first decide what percentage of the home belongs to the bankrupt person and what percentage belongs to their spouse or partner. It may or may not be an easy 50-50 split, so it always pays to have sound financial advice you can trust if you’re facing bankruptcy.

If the home is owned completely by the non-bankrupt partner or spouse, the trustee cannot take that asset to repay creditors. If the bankrupt partner or spouse has what is known as ‘beneficial interest’ in the property, Citizen’s Advice explains that it can be taken to repay creditors, or the non-bankrupt spouse may be given the option to buy-out the share of their bankrupt partner so as to not lose their home.

Can I Give My Spouse My Share of Our Assets Before Bankruptcy?

When considering how does going bankrupt affect my spouse, it may be tempting to ‘gift’ your spouse your share of the home or valuable assets prior to going bankrupt.

It’s important to understand that the trustee will investigate any gifts that a bankrupt person has made within five years of them being declared bankrupt. This is to ensure that there isn’t fraudulent activity on behalf of the bankrupt spouse trying to avoid repaying their creditors.

When considering how does going bankrupt affect my partner, it’s important to ensure that any sale of home or other assets must be done at the true value of the asset and not at a reduced rate.

How Can Irwin Insolvency Assist With Bankruptcy

Bankruptcy is a challenging time personally and in relationships. Understanding your rights and responsibilities at law before and during bankruptcy can help a difficult process go as smoothly as possible for you and your loved ones. Contact Irwin Insolvency today for professional advice for you and your spouse in bankruptcy.