Bankruptcy options for 2 individual home owner’s pre their marriage, rid of 1 home

andrewdeerpark

Here is a question on the new bankruptcy regime. I know of many people who were homeowners individually during the boom then they subsequently married. Post marriage they lived in one house and rented the other or because the properties were not suitable for a family they rented out both their individual homes and rented a house jointly.


They are now struggling to maintain both houses so they obviously want rid of one, can one individual in a marriage stop paying the mortgage on their property hand back the keys to the bank or sell it at a loss then claim insolvency and declare bankruptcy without affecting the other spouse?


It’s obviously better to renege on the debt and declare bankruptcy as you then are not pursued for the remainder of the debt after 3 years? Do not just leave the debt their and the personal insolvency route may not be the way to go as I think an individual bankruptcy would be quicker. While they are at it load up the chosen individual within the relationship with any other debt like credit cards etc and wipe the slate clean.



I think it’s a valid strategy in these hard times for such couples. Thoughts anyone?

Lbeard

andrewdeerpark wrote: »

It’s obviously better to renege on the debt and declare bankruptcy as you then are not pursued for the remainder of the debt after 3 years?

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andrewdeerpark

Very good.....

Still does not answer the question legally?

moonfish

i know the bank can have a judgement put against the main family home for the outstanding amount after the sale of the 2nd home

Marcusm

Sean Fortune, Ivan Yates and Brendan Commiskey.

Are they related to the topic at hand?

Lbeard

Marcusm wrote: »

Sean Fortune, Ivan Yates and Brendan Commiskey.

Are they related to the topic at hand?

Ivan's problems are apparently not completely over. Even though he has been discharged from bankruptcy in the UK, there may still be an issue in Ireland over property that he had an interest in before bankruptcy. I think this is stuff jointly owned with his mother and wife.

Ivan says he doesn't know what the situation is. If Ivan doesn't know, does anyone know?

Marcusm

Lbeard wrote: »

Ivan's problems are apparently not completely over. Even though he has been discharged from bankruptcy in the UK, there may still be an issue in Ireland over property that he had an interest in before bankruptcy. I think this is stuff jointly owned with his mother and wife.

Ivan says he doesn't know what the situation is. If Ivan doesn't know, does anyone know?

I'm quite sure he woudn't like to be lumped together with Fortune, however.

Lbeard

Marcusm wrote: »

I'm quite sure he woudn't like to be lumped together with Fortune, however.

Yeah, well, I'm not to happy being lumped with Ivan.

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Peregrinus

Two thoughts occur to me.

First, when one member of a couple is bankrupt and the other is not, jointly-owned assets are affected. They can be sold, and the non-bankrupt spouse paid out his or her share. Similarly, any joint debts and obligations the couple have are called in. Obviously both of these things can affect the non-bankrupt spouse, possibly very seriously. It depends on how many joint debts, and joint assets, the couple has.

Secondly, loading up one spouse with debts in anticipation of going bankrupt - i.e. incurring obligations you know you will be unable to discharge as they fall due - is fraud, and bankruptcy does not protect you from fraud charges; it may in fact be the occasion for triggering them.

Lbeard

Peregrinus wrote: »

Two thoughts occur to me.

First, when one member of a couple is bankrupt and the other is not, jointly-owned assets are affected. They can be sold, and the non-bankrupt spouse paid out his or her share.

This could be catastrophic for the non-bankrupt spouse. They may have a share in a property. The non-bankrupt spouse may be fully able to pay the mortgage on their property. But if there is a forced sale - the non-bankrupt spouse could end up in a position where their lumbered with debt and have not property.

I'm very curious to know what the legal position is on this. How is a party protected against a detrimental liquidation of an asset they hold and interest in?

Secondly, loading up one spouse with debts in anticipation of going bankrupt - i.e. incurring obligations you know you will be unable to discharge as they fall due - is fraud, and bankruptcy does not protect you from fraud charges; it may in fact be the occasion for triggering them.

I wouldn't advise anyone to try it. But plenty of people have done it - deliberately incurred debts, transferred profits to a spouse and then have gone bankrupt.

Peregrinus

Lbeard wrote: »

This could be catastrophic for the non-bankrupt spouse. They may have a share in a property. The non-bankrupt spouse may be fully able to pay the mortgage on their property. But if there is a forced sale - the non-bankrupt spouse could end up in a position where their lumbered with debt and have not property.

I'm very curious to know what the legal position is on this. How is a party protected against a detrimental liquidation of an asset they hold and interest in?

They're not. You protect yourself, by not co-owning property with someone whose credit you do not have faith in.

What is protected is your interest the asset. If you have a half-share in a house, and your co-owner is bankrupt, if the house is sold your half-share will be paid out to you. But, as you point out, that could be cold comfort if you didn't want it sold. And of course if the property is mortgaged and you are one of the mortgagors (which you will be) even your half-share is subject to the mortgagee's interest.

The result, as you note, is that you may end up with nothing, even though you were able to service your share of the mortgage. But that's a risk you take when you co-borrow with somebody.

beeftotheheels

http://www.rte.ie/news/business/2013/0906/472725-insolvency-service-home/

"When a person is made bankrupt the joint tenancy, to use the classic situation where a man is married and he has a spouse, is split and as Official Assignee, half the house vests in me."

So, does anyone know if that means that a bankruptcy servers the joint tenancy into a tenancy in common.

There used to be a share scheme based on holding plc shares in a joint tenancy between an employee benefit trust and the individuals, I'm now puzzling whether either the shareholders or the assignee could end up with a large and unwelcome tax charge because of a bankruptcy.

The scheme worked because of the joint tenancy, sever it and there's potential income tax to pay on the value of the shares (by the assignee?) if they're owned in a tenancy in common (i.e. where you could say of the 100 shares 30 now belong outright to the EBT and 70 now belong outright to the Assignee).

Peregrinus

Yes, bankruptcy severs a joint tenancy, because it effects a transfer of the bankrupt's interest to the assignee (Bankruptcy Act 1988 s. 41) and since the assignee and the non-bankrupt tenant then hold interests which they acquired at different times in different dealings, they do not hold as joint tenants but as tenants in common.

I'm not familiar with the share schemes you mention, but in general yes, the severing of the joint tenancy can have adverse consquences for the co-tenants including, in principle, adverse tax consequences.