My spouse is Bankrupt in UK. Will it affect my credit score?

There are so many people in UK who have only vague knowledge on bankruptcy. Many people think if they will be declared bankrupt, their spouses would too go bankrupt. Many people while thinking of going bankrupt worry about their spouses’ bankruptcy as well. Others think that if they go bankrupt, their spouses would have to bear all the responsibilities of paying off their outstanding debt. However, most of these thinking are merely myths.

A person’s bankruptcy does not affect his or her spouse’s financial health directly, provided you don’t have any joint debts or assets with your spouse. But if you have a joint debt with your spouse and you go bankrupt, your spouse becomes responsible for paying off the entire debt amount. So, when a person goes bankrupt and he has a joint debt with another person, the other person will also seek to go bankrupt in order not to take the complete responsibility of the debt. This could be the case with your wife as well, if you have a joint debt with her. It also happens many times that spouses, even after splitting, have to bear the burden of debt, if the debt is in both names.

Let’s discuss in detail what could be the financial implications on someone if his or her partner goes bankrupt:

Joint Debts: If you have a joint debt with your spouse and you go bankrupt, your spouse becomes responsible for the whole debt amount.

Joint Property: If you have a joint property and you have also debt together, then the Official Receiver takes control on your property. The property would be sold and the amount so realised will be distributed among your creditors. In case, the debt is not in joint names, the joint property will be split into two categories – property with equity and property without equity.

If the property is without equity, then the Official Receiver may allow the non-bankrupt partner to buy-out the bankrupt person’s share in the property. This will be a low-cost buy-out and after paying a small amount the non-bankrupt person can get the ownership of the whole property. This can preserve your property. Even though you go bankrupt, your spouse can buy it out by paying a small fee, provided you don’t have joint debt together.

If the property is with equity, then the bankrupt person’s share of any equity will be needed for the bankruptcy. This will be done by selling the property and the equity will be realised. Another alternative is that the non-bankrupt partner can preserve the property by paying this amount to the Official Receiver.

In worst cases, the Official Receiver could initiate the sale of the property, which may have an adverse impact on the non-bankrupt partner as well.
Living Together in a rented accommodation: If both of you live together in a rented accommodation but don’t have any joint debts, then the impact of one person’s bankruptcy on another partner will depend upon their monthly earnings. The Official Receiver will investigate the pay slip of both the partners to ascertain who contributes how much into the household expenses. In this way, the Official Receiver tries to find out if the bankrupt person has some surplus income that can be utilised to pay to the creditors. This does not affect the non-bankrupt person in any manner. The non-bankrupt partner has nothing to do with the bankruptcy. However, the Official Receiver examines the salary slip of the non-bankrupt person as well in order to get a clear picture about the bankrupt person’s incomes and contributions into the household expenses.

Living Together and the ownership of the House is with one of you: Both of you are living together in a house that is in the name of one of you and this person pays the mortgage only. If the person owning the property goes bankrupt, then it will come under the scanner of the Official Receiver and the property could be considered as an asset to be realised to pay off the debt.

If the non-bankrupt person owns the property, then the Official Receiver will try to find out if the bankrupt partner has any beneficial interest in the property. Even if the house is not in the name of the bankrupt partner, the Official Receiver will try to establish a co-relation, which is difficult though altogether. The non-bankrupt person, on the other hand, can prove that the bankrupt person has no beneficial interest in the property. This he or she can do by showing all bills of mortgage payments, taxes, maintenance fees etc paid by him or her only.

Post a comment