The Impact of Bankruptcy in Financial Remedy Proceedings

Time is of the essence in financial remedy proceedings when one party is at risk of becoming bankrupt.

COVID-19 has undoubtedly had a significant impact on most aspects of life, including the economy and businesses.

As a result, ingenuine bankruptcy claims are becoming more frequent. False bankruptcy applications are used as a tactical device to stop a Property Adjustment Order going ahead during financial remedy proceedings. However, it is possible for the other spouse to apply for a Bankruptcy Order to be annulled in these circumstances.

The Matrimonial Causes Act 1973 protects spouses and dependants within financial remedy proceedings. However, it can become conflicted with the Insolvency Act 1986. It aims to protect creditors in the circumstances that a debtor cannot pay their liabilities.

Ideally, a declaration of solvency should be made at the time of making the financial order. This means that a party cannot realise their interest in the property or asset if that party later becomes insolvent, once a Property Adjustment Order has been made.

Common questions on this topic include-

I’m getting a divorce, but my spouse has been declared bankrupt, will this have an effect on the share of assets I will receive?

A number of issues can arise in these circumstances. A trustee is appointed to deal with the bankruptcy.

As a result of this, before there can be any transfer of property or asset which is jointly owned by the spouses, that trustee will have to agree to this. Therefore, it will have an impact on any potential matrimonial settlement, as the court will not be able to make a Property Adjustment Order in relation to jointly owned property or assets.

Does the same apply if only a bankruptcy petition has been made?

This same applies if only the bankruptcy petition has been made, regardless of whether the Property Adjustment Order has been granted yet.

If a Property Adjustment Order was or is made by the courts during these circumstances, it is likely to become void if later challenged.

Therefore, in terms of the division of jointly-owned assets, a bankruptcy petition will most likely have the same impact as if your spouse has already been declared bankrupt.

A Property Adjustment Order has been made, but now my spouse has applied for bankruptcy. Will this change anything?

A Property Adjustment Order made before the start of a bankruptcy application is far more difficult to be challenged.

Although there are 3 grounds upon which it can be challenged:

·  if the order constitutes a transaction at an undervalue;

·  a voidable preference; or

·  a transfer to defraud creditors (this is very difficult to prove).

If you would like to find out more information about the issues raised above, please contact Susan Taylor. 0161 883 0460 or email st@taylorking.co.uk