Bankruptcy is a last resort for UK residents who are unable to repay their debts. The assets of the individual, which may include the home, income, and shares, are used to pay creditors for some, but not all, debts. People in bankruptcy are subject to restrictions that may affect their lifestyle. After a specified period (usually 12 months), the covered debts are discharged.
An individual must complete and submit several forms and bankruptcy fees totaling £700 to cover the cost of managing the bankruptcy and pay court expenses. Once the court issues a bankruptcy order, the individual must turn over financial interest in the home as well as all assets of value. A person called a trustee is appointed to manage the bankruptcy.
During the bankruptcy period, the covered individual may not make payments to covered creditors or use credit or bankcards. All spare income may be applied to help repay bankruptcy debts. Any debts excluded from the bankruptcy order, which typically include student loans and court fines, must be paid. The bank may freeze current accounts and prohibit new accounts from being opened. During the bankruptcy and for up to six years afterward, the covered individual will find it more difficult to get credit.
When a spouse files for bankruptcy, the other partner often becomes worried about how it will affect him or her. If a spouse files for bankruptcy and included debts are held jointly with the other partner, this other person is held responsible for the total amount of debt. However, if the spouses do not have any joint assets or debts, the bankruptcy of one individual will not directly affect the other.[needhelp01]
When the bank freezes accounts, it will also freeze joint accounts. This means that the nonfiling spouse will be unable to use the account to receive or make payments. If money is owed to a building society or bank where an account is held jointly with a spouse, the institution can request repayment from the other account holder. The filing spouse may ask the trustee to release the other person’s share of the money in a joint account.
Each spouse has a separate credit report so unless the nonfiling partner assumed a debt jointly with the spouse filing for bankruptcy, his or her credit report will not automatically be affected. However, creditors can take court action to pursue the nonfiling spouse for money owed, which could affect the individual’s credit rating if the person is unable to repay the debt. If the debt is held jointly, the creditor may pursue either party, potentially affecting the credit of the nonfiling spouse.
In bankruptcy, a joint debt is treated differently than other debts. Instead of being wiped from the record of the individual who filed, it is essentially transferred to the other account holder. If this individual cannot repay the debt, his or her credit will be affected. In the case of a joint mortgage, the nonfiling spouse may end up homeless due to sale of the property to repay the debt.