In short, yes. Although it is commonly believed that bankruptcy will affect both partners when one files for bankruptcy, it only applies to the individual applying for bankruptcy. However, there are a few factors, in certain situations, where bankruptcy may impede on the non-bankrupt partner. If you’re married and heading down the bankruptcy path, it’s important that you and your partner fully understand how it will affect both of your lives. You can read more on the pros and cons of bankruptcy in our blog on the subject. But, for your partner, read on to better understand the situations where filing for bankruptcy can affect them.
They use an asset you own
If there is an asset such as a car, or even a house, that is shared by you both, your partner cannot retain full use or financial autonomy of these assets. If you are joint owners, your Trustee becomes the owner of your share and the co-owner/s are unable to make any financial decisions about the asset without the Trustee’s permission. If you are unable to pay your debts on these assets, they may be repossessed (it remains a shared responsibility to retain repayments on these assets). However, your spouse is able to submit an offer to purchase your share from the Trustee.
You share a bank account
If you have a joint bank account, the Trustee may claim half of the account’s balance.
Shared gifts or inheritance
If you received an inheritance before bankruptcy, it is at risk of being claimed by the Trustee, even if that inheritance is shared (your portion will be claimed if it was assigned to both you and your spouse). If you receive inheritance during your bankruptcy period (usually three years, or until debts are paid), it is handed directly to your Trustee. If it has been given to only you, the entire amount is claimed by the Trustee at the benefit of creditors. This also includes any other gifts of money or property.
You have shared debt
As mentioned above, shared debts continue to have shared responsibility of payment and the portioned owned by your spouse continues as normal. This means that larger debts like home loans are at greater risk of defaulting, particularly if these payments had previously been made through joint payment systems (your earnings, beyond that for reasonable living expenses, are claimed by the Trustee for creditors).
Your spouse is not required to file for bankruptcy because you have, and their credit rating is not affected unless they are unable to pay debts in their name. However, bankruptcy does affect spouses in indirect but serious ways. It’s important that these factors are fully understood, and that clear pathways are created on your bankruptcy journey to include assisting them as best you can.
If you’re worried about how bankruptcy will affect your spouse, contact Shaw Gidley today for a free consultation to better understand the process and how it affects your loved ones.