How at risk is the family home after declaring bankruptcy?

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[The following is from a guest poster based in the UK]

Family breakdown can be an expensive business. As well seeing a relationship that was previously on solid ground disintegrate, the kids may feel like life is about to get a whole lot worse, while the financial implications of, say, a divorce, could be huge. In the event of a split, there may be plenty of legal wrangling over who owns what and which spouse is entitled to what.

In such circumstances, there can be plenty of anxiety if any family affected by divorce is in financial difficulty, particularly if one spouse is worse off than the other. If, for example, one recent divorcee has thousands of pounds worth of debt to pay off, but they can’t afford to pay it all back, then they may have to declare bankruptcy, but when it comes to repaying debts after that, it gets complicated.

Not split down the middle

The family home is usually the greatest asset that the bankrupt divorcee will have. In theory, they could use it to pay off any outstanding debts they may have, but if it’s matrimonially owned, the non-bankrupt divorcee may have something to say about that. They may think that either the home falls into their hands or that they’re entitled to money equivalent to half the property’s value.

What actually happens is that most assets owned matrimonially or solely by the bankrupt divorcee will now become property of a third party – the Trustee in Bankruptcy – instead. The Trustee acts on behalf of all the bankrupt divorcee’s creditors, trying to get back as much money as possible for them. They tend to have the final say in where the money or property goes.

If the non-bankrupt divorcee wants to take control of at least half the family home, then they will only be able to do so with the permission of the Trustee. In most cases, the non-bankrupt spouse is likely to lose out purely because of the dire financial situation of the bankrupt spouse, which is why working together is a must for all involved.

Fewer assets, less hassle?

Families that have at least a home to their name will be able to hand it over to creditors in the event of bankruptcy. Non-homeowners on the other hand are a little more vulnerable. If they’re saddled with significant debts that need to be cleared promptly, then they may have far less by way of assets to satisfy creditors who need their money back.

As 77% Of People Who File for Bankruptcy Are Non-Homeowners, any couple facing a breakdown in their relationship may find it even harder to avoid declaring bankruptcy. Fortunately, when it comes to dividing assets, the process of determining who owns what and what constitutes matrimonial ownership is less messy than it is for families with a property.

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