Bankruptcy and Divorce or Bankruptcy and Dissolution

Bankruptcy and divorce or bankruptcy and dissolution can be particularly problematic for the (former) spouse/partner. Where a person is made bankrupt their assets vest in the Trustee in Bankruptcy. The (former) spouse will then be facing a completely different party whose aim is to realise any and all assets they can, rather than preserve the financial situation and place a roof over the head of the family.

If the finances have not already been dealt with then property cannot be transferred between the parties without the permission of the trustee, who will normally agree to this only if the bankrupt's share is bought out. Where there is insufficient money to do this the assets will almost certainly have to be sold. This can include the family home, although the Trustee has to wait 1 year from the bankruptcy Order to apply for this.

Where the bankrupt is in receipt of an income then normally any money after the bankrupt's reasonable living expenses is payable to the Trustee to discharge the outstanding debts. They will have difficulty paying maintenance as a result.

It is not uncommon for spouses to deliberately make themselves bankrupt to try and prevent their spouse from getting any money out of them. Nowadays a person can attend Court, complete the paperwork and be made bankrupt all in the same day. If they do so wrongly then an application can be made to the Court to annul the bankruptcy. The Court will sometimes also make Orders against a bankrupt, despite the bankruptcy where they feel there are assets available. However, where there are concerns that a party may make themselves bankrupt, it is important that the issues are brought before the Court for resolution as soon as possible.

Where the bankruptcy arises after any settlement, there is a risk that the trustee will seek to set aside any settlement that was reached. The best way to avoid this is by the settlement being confirmed in a Court Order.

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