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Life During Bankruptcy - Your Non-Bankruptcy Spouse

 

With excessive debt comes pressure and stress. If you are considering bankruptcy as your solution, an important consideration is possible implications for your life partner. To assist, we provide a summary on what your life partner can expect:

Exposure to your liabilities

Firstly, debts solely in your name are not contagious and will not pass to your life partner.

If you have incurred joint debts, your partner will remain liable for those debts. This can happen when you finance a car together and it is subsequently repossessed to cause a shortfall on the loan. You will be released from the debt, but your partner will remain liable.

Your partner will remain liable for debts that he or she properly guaranteed in writing. Where you have incurred a debt in your name and your partner has first obtained independent legal advice and given the lender a written guarantee, your partner will remain liable for the debt.

Credit Rating

Without regard to whether you are married or in a de facto relationship, your bankruptcy will not be recorded on your spouse’s credit record.

National Personal Insolvency Index (NPII)

Whilst your name will be recorded on the National Personal Insolvency Index (NPII) this will not cause your life partner’s name to be recorded on the National Personal Insolvency Index. Your bankruptcy does not cause your spouse’s name to be recorded on the NPII.

Spouse’s Wages

Wages of your partner from separate employment will have nothing to do with your bankruptcy.

Spouse’s Bank Account

Your partner's separate bank accounts that you have nothing to do with will not draw to your bankruptcy.

Joint Bank Account and Saving Money

You can operate a joint bank account during bankruptcy. This can be useful for everyday living and paying your bills. If you wish to jointly save, for your savings to be safe they must remain in an ordinary bank account. You cannot have a joint investment account, IBD, or joint investments. Your partner's separate savings will be safe.

Joint Bank Account When You Become Bankrupt

You can operate a joint bank account with your spouse before and during bankruptcy. Your Trustee will not claim your partner's funds in the joint account when you become bankrupt. You can retain your funds in the joint account up to $2,000. Your funds in excess of this amount are required to be paid to the bankrupt estate.

Family home

A property owned and paid for by your partner, without your involvement, will not draw to your bankruptcy.

A property jointly owned with your partner will cause the co-owner to have contact with your trustee. A few points to note here when the trustee becomes involved, he steps into your shoes and cannot sell the property without the joint owner’s knowledge and involvement. The Trustees' job is to realize your equity in the property and will ask the co-owner to agree to the house being sold. It is common for the co-owner to want to remain living in the family home. For this to happen there are two options. One is to settle with the trustee by paying your share of the equity in the property to the bankrupt estate and the other is for your partner to buy from the trustee your interest in the property. Both options involve a contract between the Trustee and the co-owner.

Family car

A vehicle owned and paid for by your life partner, will not be drawn into your bankruptcy.

If a vehicle is jointly owned, the value of your half share of the vehicle cannot exceed $8,150

If a vehicle is jointly financed, your half share of the equity (value of vehicle less loan payout) cannot exceed $8,150

If your vehicle is subject to finance and has a balloon payment at the end of the contract, it is possible for your partner to buy the vehicle by paying or financing the balloon payment.

Borrowing Money

Subject to meeting the lender's requirements, your partner will be able to borrow monies in his or her own name, without regard to your bankruptcy. During the five years that bankruptcy is on your credit record, it will be difficult to borrow monies jointly and we do not recommend joint loan applications while bankruptcy is on your credit record. The decline of your joint loan application will damage your partner's credit record. However, your partner can apply for a loan in his or her own name and show that your income contributes to payment of household expenses. This increases your partner's ability to meet required monthly loan payments.

Once bankruptcy is removed from your credit record and you have commenced repairing your credit record, it will be possible for you and your spouse to apply for loans jointly.

Household Furniture

Your household furniture is protected for you when you become bankrupt so, what furniture belongs to you and what furniture belongs to your partner will not be an issue.

Inheritance

If your partner receives an inheritance before or while you are bankrupt, those monies will belong to your partner and will not be drawn into your bankruptcy.

If you and your partner jointly receive an inheritance before or while you are bankrupt, your partner will retain his or her entitlement while your entitlement is required to be paid to your bankrupt estate.

Lottery or Gambling Win

If your partner receives a lottery or gambling win before or while you are bankrupt, those monies will belong to your partner and will not be drawn into your bankruptcy.

If you and your partner jointly receive a lottery or gambling win before or while you are bankrupt, your partner will retain his or her entitlement while your entitlement is required to be paid to your bankrupt estate.

Gift from family

If family gifts money to your partner, while you are bankrupt, those monies will belong to your partner and will not draw to your bankruptcy.

Redundancy

If your partner is made redundant, the redundancy monies will be the sole property of your partner.

Family Business Operated as a Partnership with Your Spouse

If you operate a business as a partnership with your spouse, when you become bankrupt, the partnership will be severed. Control of the assets of the partnership will remain with your spouse. Your partner is required to take account of the assets and liabilities. Your share of surplus funds is required to be paid to your bankrupt estate. If there is a shortfall, (liabilities exceed the assets) that shortfall will be caught by your bankruptcy, but your partner will remain liable for the full amount of the shortfall.

During bankruptcy, you can operate a business as a sole trader.

Company Directorship

You cannot be a company director whilst bankrupt. If you have a company, we do not recommend that your spouse replace you as the company director while you are bankrupt. Your spouse could be exposed to personal liability for the company’s tax debt. Your spouse should obtain advice from your tax accountant before agreeing to be a director of your company.

If you have any questions on bankruptcy or would like to discuss your situation, please give us a call on 1300 764 197 or email: hello@understandingbankruptcy.com.au and we will be happy to answer your questions.