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My Partner and Bankruptcy
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My Partner and Bankruptcy

My Partner and Bankruptcy

Your partner or spouse may be affected if you go Bankrupt. You need to understand the implications particularly if you have jointly owned property or joint debts.

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Does your partner have to pay your debt if you go Bankrupt?

If you go bankrupt your partner will not have to pay your debts. Legally speaking as a third party they are not liable to pay debt that is just in your name even if you are married.

Despite this you do have to include details of their income on your application form. This is the case whether they are working, receive benefits income or a combination of both.

The reason is the Official Receiver must ensure they pay their fair share towards the household expenditures. As such a household surplus income has to be calculated. This is then shared between you both proportionally based on the amounts you each contribute to the income. Your share will have to be paid towards your debts each month.

The only way to avoid having to declare your partner’s income is if you can successfully argue you are just a lodger in their property.

What happens to Jointly Owned Property if you go Bankrupt?

Your partner’s share of any equity in a jointly owned property is protected if you go bankrupt. However yours is still transferred to the Official Receiver (OR) and has to be realised to help pay your creditors.

Your partner can buy back your share from the OR. If there is no equity in the property this can be done for a nominal sum plus solicitors costs. However where it is worth more an amount similar to the value of your share will have to be paid.

If neither of you are unable to raise the money to buy back your share of the equity after 3 years action could be taken to force a sale. If this happened your partner would be given their share of any equity released. Your share would be retained by the OR.

The Official Receiver does not want to force the sale of a jointly owned property. It would only happen if there is significant equity and your share cannot be released any other way.

Is your Partner’s Credit Rating affected if you go Bankrupt?

Your credit rating will become poor if you go bankrupt. However the rating of your partner or anyone else living at your property will not be affected.

The record that you are bankrupt does not show up on anyone else’s file. This is the case even if you and your partner are married. As such they can continue to apply for new credit if they wish.

Having said that the credit records of two people living at the same address can be mixed up. As such after you go bankrupt it is sensible for other adults living at the property to get a copy of their credit file to ensure no mistakes have been made.

What happens to your Partner’s Debts if you go Bankrupt?

Only unsecured debts in your name can be included if you go bankrupt. Debts in your partner’s name are not included and still have to be paid.

This will be a problem if they cannot afford to pay their own debts from their share of the household surplus income. You will no longer be able to help them pay from money you receive.

There may also be an issue if you have debts in joint names. You will no longer have to pay these after you go bankrupt. However your partner must maintain the payment as they remain liable to pay 100% of the outstanding balance.

If your partner cannot afford to pay debts in their name or joint debts from their own income they may have to consider using a debt solution themselves.

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30 thoughts on “My Partner and Bankruptcy

  1. Sarah says:

    Hi James,

    I have a question please on the income and expenses part of the bankruptcy form. how do we declare the income when me and my husband are both applying for bankruptcy, we are both unemployed and receive universal credit which is in both of our names.

    Do I enter the full amount of benefits we receive on my form and he does the same? Or do we divide the figure in two and we each enter half the full amount?

    And for the expenses do we enter the actual figures or again divide and enter half and half each if that makes any sense?

    Really looking forward to your reply and appreciate your help and advice.

    Thank you

    1. Hi Sarah

      If you are both applying for bankruptcy then as I am sure you know, you both need to complete a separate application form. On each form you need to include the total household benefits income and total household expenses.

      You have no real need to worry because the official receiver won’t take any of your benefits from you. Neither of you will have to make any further payments towards your debts.

      The only time this could change if if either of you start working during the year you are bankrupt and you have a surplus income a result.

  2. Mark says:

    Hi, I am considering going bankrupt as it seems the only option I have left. I brought a house with my partner 2 years ago however I didn’t pay the deposit as this came solely from her previous house sale. The deposit was about £28k and the equity in the house currently is about £35k. If I go bankrupt will the OR force sale and expect 50/50 on the equity in the house?

    We have paid all bills and mortgage payments on a 50/50 basis so I understand I have financial interest in the property but I don’t want my sole bankruptcy to effect the initial deposit she has put in. I think there are family that would buy my side of the equity for her to stop sale, but just didn’t know what stance they would take on the amount of the equity?

    The debt is mine and not in anyway linked to my partner which is why I am concerned about her not losing her money. Thanks

    1. Hi Mark

      As long as you are not married and can prove your partner paid the deposit for the house (for example with her bank statements) then the official receiver should accept that she has the first claim on the equity up to the value of the deposit she paid. As such your equity would be valued at £3.5k (£7k (£35k-£28k) divided by 2 = £3.5k). As such this is the amount that would have to be raised to buy back your interest from the OR.

  3. Ivan says:

    Hi, if I declare bankruptcy, will my wife (no joint debts) be able to take out a car loan (she has good rating). We have no assets?

    1. Hi Ivan

      If you go bankrupt your partner’s credit rating will not be affected. As such she will still be able to get credit such as a car loan if she meets the lender’s criteria.

  4. Livvy says:

    Hi,

    It is likely that my husband may have to file for bankruptcy as a result of the HMRC loan charge. We received the figure that they are seeking and it will be impossible for him to pay that back (even with an instalment plan as he has other debts and the amount they say he owes is over 200k). The house is in my name (bought before we met) and we have a pre nup (married 2016) separating our finances and ensuring no interest in the house without an amendment to the pre nup (we did this as I had substantial equity/savings and he had debts). We have no children. He does pay a monthly lump sum towards ‘rent’ and expenses inc food but is not on the mortgage.

    My question is whether the house is safe if he declares bankcruptcy and whether we can ensure that all liability to HMRC would be included such that we have a clean slate after a year (even the ‘closed’ years where there is an option but not a requirement to pay income tax for the loan charge). And also whether there may be other disadvantages I’ve not thought of apart from the usual restrictions that bankruptcy implies. Thank you so much in advance. Livvy.

    1. Hi Livvy

      This is not an easy one to answer. On the face of it given you bought the house, paid the deposit and have always paid the mortgage he should have no interest. However if he goes bankrupt the official receiver will still need to consider it. They may try to argue he has an interest based on the fact you are married.

      My suggestion is before he does anything you should go an take advice from a family lawyer (perhaps the same one that helped you with the pre nup). The question you need to ask is if you and your husband split and there were divorce proceedings would he be entitle to any part of the house.

      Generally speaking insolvency follows the same rules as family law in these matters. As such if a family lawyer says there is no way he has an interest get this in writing so you can show it to the official receiver. It is then very unlikely they would take further action. However if your solicitor says there is a possibility he might be entitled to something then the OR is likely to have a case.

      In that situation it might be worth your husband considering an IVA first of all as this would protect the house if it can be done. Alternatively he could go ahead with the bankruptcy but be prepared for the fact that he may have some interest in the house and so some money would need to be handed over in lieu of this.

  5. Lynn says:

    Hi. I’m considering bankruptcy. My husband and I both own cars required for work commutes.. Mine is low value of about 1000. His is about 3500. I wondered whether my partners car would have to be declared or would be affected by my bankruptcy. Thank you

    1. Hi Lynn

      If you were to go bankrupt you do not need to worry about your husband’s car. Given he paid for the car it is not your asset. As such it does not form part of your bankruptcy estate and it would not be at risk.

      It is likely you would have to declare his car expenses in your income and expenses budget. However it would not be at risk.

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