Mounting and spiralling debts are serious issues that affect many people and can cause stress and unrest amongst those who might be facing bankruptcy. Financial pressures and debt issues can put families under a huge amount of strain and in many cases, even cause the family to split up.
When parents split the impact on the family can be devastating. Unfortunately, there is a lot more to take into consideration in addition to dividing the assets – especially where debts are concerned.
Complications can occur if either party has debts in their sole or in your joint names, and certainly if one party is on the verge of bankruptcy.
When a person declares themselves as bankrupt all of their assets are held by the Trustee in Bankruptcy . This means that the overall value of the matrimonial assets will depreciate due to the impact of the bankrupt spouse.
The Trustee in Bankruptcy administers the bankruptcy and is usually an accountant who specialises in personal bankruptcy. It is the Trustee’s role to manage the assets, such as property, and sell them to pay off the bankrupt’s debts.
What happens if one party is bankrupt?
If both spouses are homeowners and their home is in both names, the house cannot be transferred into the other spouse’s name without the consent of the Trustee in Bankruptcy. In addition, it is usually the case the spouse must buy the bankrupt’s share of the house at a reasonable market value and this would only be possible if the spouse had the necessary funds with which to proceed.
However, it is more common that it is non-homeowners who are found to file for bankruptcy. 77% of people who file for bankruptcy are non-homeowners . Only 23% who do file for bankruptcy will have their share of the home transferred to the Trustee in Bankruptcy.
What else should I know?
There are many conflicting factors to take into account in the event of divorcing couple, one of whom has debt problems or is on the verge of bankruptcy.
Depending on the circumstances of the situation, it is usually very unlikely that the bankrupt spouse will be able to pay a lump sum to the spouse as all assets and income will be managed by the trustee and used to pay off debts.
When it comes dividing the assets, particularly in the case of property such as the matrimonial home, it’s important to keep in mind that the needs of the non-bankrupt spouse will follow those of the outstanding creditors.
This is a difficult issue to navigate. Should your family ever feel that divorce is the only option in the wake of bankruptcy, then it requires a great deal of care and diplomacy to get everything resolved.