17 April 2020

Bankruptcy and divorce during Covid-19

As a result of the ongoing Covid-19 pandemic, many individuals are under immense financial pressure, with increasing reports of reduced pay and job losses. Some are even now faced with bankruptcy. It is not uncommon for bankruptcy and divorce proceedings to occur concurrently. If either you or your spouse are made bankrupt prior to, or during divorce proceedings, this will add to the stress, and will most likely affect your finances and any financial settlement you receive.

What is bankruptcy?

In England, a creditor (someone who is owed money) can present a bankruptcy petition to the court on the basis that a debtor (the person who owes the creditor money) cannot pay their debts. A debtor can also apply to the court themselves to be made bankrupt. A bankruptcy starts when the court issues a bankruptcy order against a debtor. Following the making of a bankruptcy order a ‘trustee in bankruptcy’ is appointed. All of the bankrupt’s assets vest in the trustee upon his/her appointment. It is the trustee’s duty to realise the assets in order to pay off the debts.

Divorce and bankruptcy

When two parties divorce, their assets are usually divided between them. However, if a party is made bankrupt and the trustee takes possession of their assets, the assets may no longer be available for division. For example, the most common asset to be affected in this way could be the family home. If the property is jointly owned and one party is made bankrupt, the court may need to determine whether property would then legally belong to the bankrupt or the trustee. If the bankrupt’s share of the property belongs to the trustee, it would fall outside the assets available for division on divorce.

Additionally, a party may attempt to fraudulently use the bankruptcy process to exasperate reaching a financial settlement. In these circumstances, a party may be able to apply to the court to set aside a bankruptcy order.

There may also be concerns over a bankrupt’s ability to make maintenance payments. However, the family court does have the power to make maintenance orders against a bankrupt. Read our article on financial proceedings and child arrangements.

What you can do

Look into Government measures

The Government has announced financial safeguards, such as loans and mortgage holidays, to help people during this time. These can help you in the short term to remain financially afloat.

Speak to a legal professional

Family lawyers are available and working, and the courts are still functioning. We can talk you through your current financial arrangements and how best to manage to your individual circumstance. We can also advise on bankruptcy and insolvency.

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About the Author
Nick Gova, Legal Director, Head of Family Law in London

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