How does bankruptcy affect a husband or wife?

January 13, 2020

Bankruptcy has wide-ranging effects on you as an individual, but potentially also on your husband or wife. If you have debts in joint names, for example, or your home is jointly owned, your spouse will be affected by the situation.

So how does bankruptcy impact your spouse in a practical sense? Everyone’s circumstances are different, but here are a few common scenarios to illustrate the potential issues you could face.

You have joint debts with your husband or wife

If you hold debts in joint names, your spouse is liable to repay them in full if you’re unable to pay your share. You enter bankruptcy as an individual, so the borrowing then becomes the responsibility of the joint party to the loan.

If your spouse cannot keep up with the repayments in full, the lender is likely to demand the total amount outstanding. In either case, it’s a good idea for your partner to seek financial/specialist insolvency advice to help them deal with the situation.

If your debts are in your name only, your spouse is not liable for repayment in any way and the debt is likely to form part of your bankruptcy order.

You’re joint owners of your home

The Trustee will establish the amount of equity in your property, and this is typically allocated on a 50:50 basis unless other ownership arrangements are in place. Your spouse’s proportion of the equity remains theirs, and isn’t used to repay any of your debts.

You’ll need to release your half of the equity, however, for the benefit of your creditors, and a common way to do this is for a partner to buy the other half. If your husband or wife can’t afford to do so, or doesn’t want to take on the additional financial liability, the Trustee may decide the house has to be sold to release the equity.

Again, your spouse’s half of the proceeds belongs to them in the sale transaction, and won’t be used in the repayment of your debts.

How does bankruptcy affect a spouse’s credit rating?

Your spouse’s credit rating is only affected by your bankruptcy if you have joint debts and they can’t afford to repay. Any debts in your sole name aren’t noted on your husband or wife’s credit file so their ability to obtain credit or loans shouldn’t be disrupted. It should be noted, however, that sometimes the fact that you share the same address can influence a lender.

When entering bankruptcy you’ll need to provide details of your husband or wife’s income and your household expenses so the Trustee can determine whether you can afford to make monthly contributions to your creditors.

For more information on the effects of bankruptcy on a husband or wife, please contact our team of experts at Northern Ireland Debt Solutions. We are bankruptcy specialists and will provide reliable, actionable advice. We also offer same-day meetings free-of-charge so we can quickly provide the information you need.

Lawrence O'Hara

Insolvency Adviser

Tel: 028 2132 6269

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