Bankruptcy and family members

When looking at bankruptcy as a solution for over whelming debt, it is worth looking at what implications’ bankruptcy will have for family members. 

We are often asked: ‘Can my spouse or partner be chased for monies owing if I become bankrupt?’
The short answer is no. For the spouse or partner to be liable they would have to of incurred the debt jointly with the person who is filing for bankruptcy or to have guaranteed the debt.

When a house is jointly owned by a bankrupt person and the spouse, the Trustee of the Bankrupt Estate will replace the bankrupt person and is also unable to sell the house without the consent of the co-owner. The Trustee will invite the joint owner to agree for the house to be sold. If the co-owner will not want the house sold it is common for the co-owner to buy out the interest of the bankrupt estate in the house to enable the family to remain living in the house. In the rare circumstance where no agreement between the co-owner and the Trustee can be found, the Trustee can make application to the Court for a Court Order that the property be sold. The co-owner should avoid this situation if possible as there is exposure for Court costs.

If the parents have guaranteed the mortgage on the bankrupt persons house by giving a second mortgage on their home, they will be exposed if the bankrupts house has negative equity. In these situations, the Trustee would not be looking to sell the house as it displays no equity and the bankrupt and parents would need consider their options. In this situation we have seen the bankrupts house rented out, net rent monies paid to the bank to buy time till the house increased in value and could be sold without negative implications for the parents. In this situation every case is different and should be assessed on its own merits.

If a family member has guaranteed debts of the bankrupt person, as guarantor the family member will remain liable for the debt.

If a family member wishes to give the bankrupt person money to help him or her get going again, the family member should wait till the person is discharged from bankruptcy or has entered a Part 4 Scheme. There is however nothing to prevent a family member from gifting groceries, protected property like household furniture items or a vehicle whose value is within the threshold amount.