IT'S about five months since those struggling with debt have been able to apply for a Government-backed out-of-court debt deal. The deals can be struck through the State's new insolvency service, the Insolvency Service of Ireland (ISI). However, many people are struggling to strike such a deal – and are being forced into bankruptcy as a result.
Bankruptcy isn't just a bitter pill to swallow for the individual drowning in debt – financial repercussions for their spouse or partner are also huge.
If your spouse or partner is considering going bust – or has no choice but to do so – be sure you both understand the financial minefield you are walking into.
What happens to the family home?
If your spouse or partner goes bust, you could lose the family home.
In a bankruptcy, the bankrupt's share of a family home transfers to a bankruptcy assignee – that is, the court official who is appointed to handle the bankrupt person's assets and debts.
You may still be able to stay in the family home if your partner or spouse goes bust – as long as you can strike a deal with the bankruptcy assignee or bank. The deal you strike will depend on a number of things, including whether the home is in negative equity or not.
The bankruptcy assignee cannot sell the family home without getting the permission of the High Court first.
"Where the bankruptcy assignee seeks this permission, the High Court will consider the matter having regard to the interests of the creditors and of any spouse or civil partner and dependents of the bankrupt person," according to the ISI's Debtor's Guide to Bankruptcy.
"If there is no equity in the family home, there is no immediate interest for the assignee to sell."
However, if a spouse or civil partner wishes to buy out their bust partner's share of the home – even though the property is in negative equity, the value of the home, the amount of negative equity, and how long the property may remain in negative equity will be taken into account when deciding what the bankrupt spouse's share is worth.
The situation is a bit more straightforward if your home is worth more than the mortgage outstanding on it. If this is the case, the difference between your mortgage and the value of your family home is known as positive equity.
If you want to hold on to the family home, you would have to buy out your bankrupt spouse's share of the positive equity.
What happens to the mortgage?
You still have to grasp the nettle of mortgage debt – even if you manage to buy out your spouse's share of the family home.
"The bank has not gone away so the mortgage debt is still there," said Michael Keenan, who heads up the personal insolvency and bankruptcy team of RSM Farrell Grant Sparks. "You will therefore need to convince the bank that you can repay the loan as you're still responsible for the debt."
It is important that you understand what joint and several liability is if you have bought a house with your spouse or partner – particularly if you think that he or she might go bust.
"With joint and several liability, you may have to pick up the tab if your spouse or partner isn't paying the debt," said Mr Keenan.
Your spouse can continue to work when he or she goes bankrupt – so if you or your spouse can afford to contribute to the mortgage repayments, you might still be able to hold on to the family home. If only one of you is working, you might be able to strike a deal with your bank where the mortgage repayments are made more affordable or spread out over a longer time. If you can't afford the repayments on the mortgage, you will probably lose your home.
So how might this work in practice?
If there is positive equity in the home, the bankruptcy assignee will usually seek to sell his half share of that equity to the spouse or civil partner first.
Let's say your husband is going bust and you both own a home which is worth around €300,000. As you still have a mortgage of around €200,000 to repay, there is positive equity of €100,000 on the home.
"If you both want to keep the home, you have two main issues to take care of," said Mr Keenan. "Firstly, the bankruptcy assignee will want to get cash for the bankrupt's share of the property. The bankrupt spouse will normally own half of the family home, so in this case, the wife may need to pay up to €50,000 to purchase her husband's half of the positive equity from the bankruptcy assignee. The assignee will usually seek a sale through the courts if a reasonable amount is not agreed with the other spouse."
The second issue you have to deal with is how the mortgage of €200,000 will be repaid. "If the income of the husband and wife are inadequate [to cover the mortgage repayments], they might need to make up the shortfall elsewhere, such as from other family or friends," said Mr Keenan. "If the couple can solve both of these issues, they should retain the home – but they will continue making mortgage repayments over an agreed loan term."