When you’re made bankrupt, it’s normal to worry about the many ways in which your spouse might be affected – especially if they’ve never been in debt or you’re planning to get married or buy a home in the next few years.
It’s a common misconception that your finances go from separate entities to a single unit as soon as you get married. However, your spouse doesn’t automatically become affected by the financial decisions you make or the debt solutions you choose to enter into after you get married. This includes bankruptcy.
This article will explore bankruptcy in more detail, from what it is and how it works to how it affects your spouse and any properties you share.
What is bankruptcy?
Bankruptcy is a legal process that allows you to write off the debts you can’t afford to pay. It can be used to deal with most unsecured debts, including credit cards, personal loans, utility bills, payday loans, and catalogues.
In most cases, you won’t need to pay anything towards your debt or deal with your creditors for the duration of your bankruptcy period (typically 12 months). This is designed to give you a fresh financial start so you can move on from your financial problems and work towards improving your credit history.
During your bankruptcy, you’ll be subject to certain restrictions when it comes to borrowing money, being the director of a company, and the types of jobs you can have. Failure to stick to these restrictions is against the law and can lead to your bankruptcy being cancelled.
Bankruptcy is a matter of public record. From the moment your bankruptcy order is made, it will be added to your credit record for six years and the Individual Insolvency Register (IIR) until three months after your arrangement ends.
There are two ways you can become bankrupt: by applying yourself or by a creditor applying on your behalf. However, a creditor can only make you bankrupt if you owe them more than £5,000 and you have enough assets to make it worth their while once the extra costs have been recuperated.
How much debt do you have?
How does bankruptcy work?
If you’ve decided you want to apply for bankruptcy, you’ll need to follow a certain set of steps.
We’ve outlined the process you can expect when you apply for bankruptcy below:
Review your debts
Before applying for bankruptcy, it’s important to review your debts to ensure it’s the right solution for you. This includes your total debt, creditors owed, and types of debt (e.g. secured and unsecured).
If you’ve done your research and you’re still unsure if you qualify for bankruptcy, don’t hesitate to reach out for professional debt advice. Even if your debts can be included, another solution might be better suited to your circumstances.
Complete an application
The first thing you need to do to kickstart the bankruptcy process is complete an online application. The form can be found on the GOV.UK website and you can save it and return to it at a later date if you wish.
There is an application fee of £680 to apply for bankruptcy, which must be paid in full before a bankruptcy order can be made. This payment is non-refundable unless you cancel your application before you submit it.
Submit your application
Before you submit your application, you’ll be asked to verify a number of key details. For example, you’ll usually be asked to confirm you are the person listed on the form, the information you have provided is accurate, and you’re happy for a credit check to be carried out.
Providing false information or omitting key details is a criminal offence for which you could be fined or sent to prison. This includes hiding property or lying about how much debt or assets you have.
Wait for the adjudicator’s decision
Once you’ve submitted your application, the adjudicator will have 28 days to make a decision. They will either agree to make a bankruptcy order, reject your proposal because you don’t meet the eligibility criteria, or request further information.
If your application is rejected and you don’t think it should be, you can ask them to review their decision. If they still refuse to reverse their decision after this, you can appeal to the court.
Start your bankruptcy
Once a bankruptcy order is made, you’ll be officially declared bankrupt and, in most cases, your bank account or building society will be frozen.
During your bankruptcy proceedings, you’ll have to hand over control of your money, assets, and property to the person overseeing your bankruptcy. It’s important to cooperate fully for the duration of your arrangement if you want to be discharged on the expected end date.
How does bankruptcy affect my credit score?
Bankruptcy can have a significant impact on all aspects of your finances. This is because it shows that you’re experiencing serious financial hardship and have been left with no other method by which to deal with your debts.
From the moment your bankruptcy order is made, it will be added to your credit report for six years. During this time, lenders will be able to see that you were recently made bankrupt and might reject your application based on this information.
This will cause your credit score to drop, which will have a knock-on effect on your ability to get credit and may mean you have to delay any current plans to get a loan or mortgage until a later date in the future.
Bankruptcy only lasts 12 months, but it will affect your finances on a wider scale for much longer. This is why it’s so important to consider the lasting impact of bankruptcy before agreeing to anything.
There are various things you can do to improve your credit score after completing your bankruptcy. This can help you rebuild your finances and work towards a healthier financial future.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
How are joint debts dealt with in bankruptcy?
When you apply for bankruptcy, you must list all your unsecured debts – including any debts you have with anyone else (joint debts). Examples of joint debts include joint bank accounts and mortgages.
Once your bankruptcy begins, you’ll no longer be allowed to pay anything towards any of the debts included – including the joint debts.
However, because the other person listed on the credit agreement is not protected by bankruptcy, they’ll become legally responsible for dealing with 100% of the debt, not just their share. This means that the creditor will likely chase the other person for payment.
The only way both parties will be protected from being chased for a joint debt is if they both enter into a legally binding debt solution.
Does bankruptcy affect spouse?
If you’re considering bankruptcy, it’s normal to wonder if and how your spouse will be affected. However, as long as all of the debts included in the bankruptcy are your debts and your debts only, your spouse’s credit report – or any aspect of their finances – won’t be affected.
As previously mentioned, if you go bankrupt when you have joint debts with your spouse, they will become responsible for repaying 100% of them outside of the arrangement.
This means that, even if they weren’t using the joint account beforehand, they will become solely responsible for ensuring the debt is paid as they’re the only other person listed on the credit agreement not protected by bankruptcy.
When you’re made bankrupt, a bankruptcy trustee will be appointed control over your estate. They can then sell some of your belongings to pay off as much of your debt as possible, ensuring your creditors are repaid what they are owed.
It’s important to note that your spouse’s assets shouldn’t be taken to pay for your debt. This includes their wages, savings, goods or property.
Will the house I share with my spouse be affected by my bankruptcy?
The impact of bankruptcy on your home depends on who owns it. For example, if your non-bankrupt partner is the sole owner and they can prove that you wouldn’t benefit financially if the home was sold, the trustee won’t have a claim on the property and can’t seize it to repay your debts.
However, if you are the sole owner or you own the property jointly, you face losing it. The only way you might be able to keep the property is if you have less than £1,000 beneficial interest in it and this amount doesn’t increase in the three years from the date the bankruptcy order is made.
If the trustee wants to sell your home to repay your debt, they must apply to the court for permission first. The non-bankrupt person living in the home (your spouse) can request for the sale to be delayed for up to 12 months from the date the bankruptcy order is made to give you time to find alternative living arrangements.
In exceptional circumstances (e.g. if you have a disabled child and a home with adapted needs or you’re over 70), the court might decide that selling the property isn’t in the best interests of you or anyone else you live with and choose to delay the sale or cancel it altogether.
It might also be an option for your partner to buy your share of the property (your beneficial interest) from the trustee so you’re no longer attached to it. Doing this behind the trustee’s back to avoid it being sold is considered an offence and can lead to your bankruptcy restrictions being extended for several years.
How is bankruptcy dealt with during a divorce?
It’s not uncommon for couples to experience bankruptcy and divorce at the same time, but this doesn’t make it less complicated and stressful to deal with. If you or your spouse has already filed a bankruptcy petition, for example, this will impact how assets are split between both parties.
When someone declares bankruptcy, a trustee is appointed to gather their assets and use them to settle their debts. It could therefore get tricky if the bankruptcy trustee ends up contesting with the bankrupt partner’s creditor about who owns which debts.
Despite this, it’s important to remember that the bankruptcy trustee has no rights over any assets owned solely by the non-bankrupt party. However, if most of your assets ear in the bankrupt spouse’s name or in joint names, this could have a significant impact on the pool of assets available to divide between you and your partner.
Can I hide my bankruptcy from my spouse?
The short answer is no. If you share a home with your spouse, it must be included in the bankruptcy and can be sold to repay your creditors, making it extremely rare that your spouse won’t find out about it.
Bankruptcies are also added to a public register, which can be accessed by anyone, including your spouse.
Even if your finances are completely separate, it’s not recommended to keep your bankruptcy a secret from your spouse. Keeping them informed can help them understand what you’re going through and they will be able to support you as you navigate the bankruptcy process – especially if you’re planning to get married or buy a home in the future.
Going to great lengths to hide your bankruptcy from your spouse can also lead to relationship problems when they find out about it down the line. Always discuss the extent of your debt with your spouse before applying for bankruptcy and keep them informed of any changes in your financial situation.
Debt help tailored to you
From writing off a large portion of your debt, to readjusting your budget, we’ll find a solution that suits you.
Conclusion
Bankruptcy is a formal debt solution that can help you deal with the debts you can’t afford by writing them off after a set period. When you declare bankruptcy, a trustee will take control of your assets and can sell them to repay your creditors.
The only way bankruptcy will affect your spouse is if they are also listed on any of the included debts, including your mortgage. Any assets solely owned by your spouse shouldn’t be affected by your bankruptcy proceedings.
Your spouse might be able to buy your share of the property from the bankruptcy trustee to prevent it from being sold to repay the debt.
