These days, it’s just as common for couples to have separate finances as to keep everything in joint accounts. But either way, problems can easily arise if one person is good at managing money and the other isn’t.
So what happens if one half of a partnership (civil or otherwise) or marriage falls into serious debt and bankruptcy becomes their only option? Will their partner or spouse be dragged down with them or escape unscathed? This article from bankruptcy experts, Bankruptcy Clinic, explains a few key facts.
You’re only liable for debts in your own or both your names
If your partner has run up massive debts in their sole name, then that’s essentially their problem. It makes no difference if you just live together or if you’re married or in a civil partnership: you can’t be made to pay off their debts, either before or after they’re declared bankrupt.
But if some or all of the debts are in joint names, then it’s a different story. Contrary to popular belief, your liability is not capped at half the amount of each debt. So if your partner or spouse is made bankrupt, you’ll become liable for the total amount of all your joint debts.
This means that, if you have a lot of joint debts with your partner, you may want to consider declaring yourself bankrupt at the same time – even if you haven’t personally benefited from the original loan, such as a joint credit card that you’ve never used.
You won’t lose any assets that you solely own
Any property or assets in your sole name can’t be repossessed and sold to help repay your spouse or partner’s debts once they’ve been declared bankrupt. So if yours is the only name on the mortgage, your house or flat should be safe.
If you do have a joint mortgage or other assets, only your spouse or partner’s share can be counted towards their bankruptcy estate. This means you could avoid having to sell your home or other assets if you’re able to buy out your partner’s interest in them.
But if you can’t afford to buy your partner’s share, you could end up losing your home. However, if you and/or your dependent children still live there, the court will normally defer the sale for 12 months so you can find somewhere else to live.
Your credit rating may not be affected
If the bad debts are all in your partner’s name, you don’t need to worry too much about your own credit rating. However, if you have joint debts now or have held joint accounts in the past, then you may be financially linked with your partner on your credit record. This could affect your ability to obtain credit in the future.
If joint bad debts or your partner’s bankruptcy appear on your credit file, you should note that this information will remain there for at least six years after the date that their bankruptcy is discharged, or the debts are paid off in full.
Your income and outgoings will be taken into account
When your spouse or partner gives the Official Receiver an account of their finances, this must include all financial information for your household. So if you still live together, you’ll need to provide an account of your personal income and outgoings to be considered alongside your partner’s.
The court will use this information to assess your overall living expenses and decide whether or not your partner can afford to make regular payments towards their debts after their Bankruptcy Order is made, through an Income Payments Order or Agreement.
So even though you’ll never be asked to make direct payments into your spouse or partner’s bankruptcy estate, you could find yourself with a lower joint disposable income for a while. However, the court will always make sure your have enough money to cover essential living costs such as rent, food and fuel.
Get expert bankruptcy advice today
Like all aspects of bankruptcy, the rules around debt liability for couples can be complex. That’s why it’s so important to seek specialist advice – whether the money problems are your own, or you’re worried about the affect your spouse or partner’s bankruptcy could have on your life.
Talk to Bankruptcy Clinic
At Bankruptcy Clinic, our aim is to give you the advice you need to make the right decisions about managing your finances. Our friendly, fully-trained advisers are on hand to listen to your story and help you find the best way forward as an individual, a couple or a family.
Call us free today on 0808 168 7389 or 01625 462 770 from a mobile. Or simply fill in our quick online form and a bankruptcy adviser will get in touch at a convenient time for you.