Ms P asked “I want my partner to move in with me but he may have to go bankrupt so we need advice on the timing. He has got a lot of debt trying to keep his business going but it doesn’t seem to be working. I have a house with a lot of equity and we don’t want this to be at risk at all.
The question is if he moves in now and goes bankrupt in a few months, will that cause a problem? Or is it best if he goes bankrupt first, then moves in? Or would it be better then to wait a whole year until he is discharged? I know this doesn’t sound romantic, but my house is important to me and to our future!”
Bother romance, those sound like very sensible questions to be asking to me! The good news is that your house is safe in any of these three situations.
The debts aren’t in your name
They are his debts not yours. You don’t have any legal responsibility for them if you are living together. This won’t change even if you get married.
His credit rating may not be good at the moment and if he goes bankrupt it will be bad for six years. But this won’t affect you if you are careful not to get any financial links with him – no joint bank account, don’t try to put his name on the mortgage or the deeds, don’t offer to guarantee any of his debts.
He hasn’t contributed anything to your house
Your house is in your name only. Sometimes someone has “beneficial equity” in a house they don’t own, in which case this beneficial equity would be at risk if they go bankrupt. But it doesn’t sound as though this will apply to your new partner:
- he didn’t provide any of the deposit when you bought the house;
- he hasn’t helped you pay the mortgage;
- he hasn’t paid for all the other expenses whilst you paid only the mortgage;
- he hasn’t paid for improvements such as a new kitchen or new windows.
You have acquired the equity in your house before he moved in, and so this equity is safe if he goes bankrupt.
If he delayed going bankrupt for many years, during which time he he helped you pay the mortgage, the Official Receiver (the person from the government’s Insolvency Service who looks into bankruptcy cases) may argue that he has acquired some beneficial equity. But that isn’t going to happen here, even if he moves in and then doesn’t go bankrupt for a year or so.
When should he go bankrupt?
With most people, if they think they are going to have to go bankrupt in the next year or so, it’s probably a good idea to get it over and done with, to have a clean start. So they should get some debt advice to check if this is their best option and then get on with it.
But there are extra considerations for people who are self employed or who have a small limited company:
- is it hard to see the true picture because their business and personal accounts are mixed up?
- could their business realistically improve so they don’t need to go bankrupt?
- what has to be done to close down the business – or can the business continue after personal bankruptcy?
- is their accountant making worried noises about “trading whilst insolvent”?
- have they not been able to afford to get their accounts done recently?
- do they owe money to the tax man? etc
In this sort of situation, it would be good for him to contact Business Debtline sooner rather later, to see what his options are. They are a charity who specialise in advising people who are self employed or who own a small business about their debts.