Bankruptcy and marriage: division of joint property of spouses

Things happen in life. It happens that one of the spouses sharply loses income, and the whole family suffers from this: the children still want to eat, utilities need to be paid, and if there are also loans... If previously the money issue pushed such a family into a debt hole for many years, now people have a real and legal chance to free themselves from debt and breathe easy. You just need to file bankruptcy for one of the spouses. In this article we will describe in detail what happens when a husband or wife files for personal bankruptcy.

What is important to know when one of the spouses goes bankrupt?

Most citizens who have already filed for personal bankruptcy have children, husbands or wives. And now these families live happily: their descendants, in addition to the inheritance, will not receive thousands of debts, and creditors will not pursue them for the rest of their lives. But it is difficult for a person who has just found himself in a difficult situation to evaluate all the possible pros and cons of bankruptcy. There is little information on the Internet, and it is often false. The first thing a potential bankrupt should think about is to assess all the risks that the procedure carries and protect property. However, first the citizen is faced with another question: how will my bankruptcy affect my family? Wouldn't it be worse?

How bankruptcy affects a family

Bankruptcy of an individual is a legal procedure. Therefore, it simply cannot have a negative impact on the reputation of relatives. But property issues should be considered in more detail. The most concerning issue for potential bankrupts is jointly acquired property. It’s worth noting right away that according to the law, it can actually end up in the bankruptcy estate. For example, if during marriage the family managed to buy a dacha, then it will go for sale. After the sale, half of the funds will go to creditors and the other half to the other spouse. We'll talk about this in more detail later.

Are there legal grounds for joint bankruptcy of citizens?

Despite the fact that the legislation strictly protects the interests of persons who have suffered from non-repayment of debts by other parties to transactions, it clearly states that the problem debt of one of the spouses can relate only to him alone and in no case can the bankruptcy procedure be entrusted to another.
Information

It is not uncommon for cases when court proceedings establish facts of joint use of property acquired with funds received in debt or on credit. In this case, bankruptcy proceedings and demands for the return of debt obligations may be presented to both spouses.

What to do when the borrower cannot repay the debt. The first thing you should do is go to court with a statement of claim declaring yourself insolvent, i.e. bankrupt, thereby ahead of a bank or other financial institution.

Before filing a bankruptcy petition in court, you should know that in order to protect the interests of the creditor and maximize the return of the debt, the court will take measures to seize property directly belonging to the spouse and jointly acquired property. In this regard, measures should be taken to preserve property so as not to put the family in an extremely difficult financial situation and to maintain the ability to fulfill debt obligations.

You should not make typical mistakes made by court defendants in a bankruptcy situation. As a rule, transactions for the transfer of part of the property to other persons free of charge, contracts for the purchase and sale of property concluded a few days before the insolvency process are easily contested and the said property is used to pay off the debt obligations of the spouses.

According to the general rule established by law, one spouse is not liable with personal property for the debt obligations of the other. However, their property can be used to pay off the debt in case of bankruptcy, by decision of the arbitration court. The problem is that in our country the Family Code of the Russian Federation establishes a regime of joint property of spouses.

In case of bankruptcy of spouses, joint property also includes property acquired with income received by the family from:

labor and entrepreneurial activity;
pensions;
benefits;
any other monetary payments.

For your information

Jointly acquired property is any movable or immovable property acquired by a husband and wife during marriage. There is no exception to this rule during the period when one of the spouses was running a household, i.e. in fact, he did not work anywhere and had no income.

In case of insufficient funds from the common property, in case of bankruptcy to pay off the debt, the spouses may be jointly and severally liable with their personal property.

If we are talking about the bankruptcy of one of the spouses, then you should know that accounts payable can be forcibly collected only from the personal property of the debtor, i.e. the second spouse does not lose anything from the jointly acquired property or his personal property. But if the amount of the debt exceeds the value of the property used to pay off the debts, then, at the request of the creditor, foreclosure may be applied to the joint property.

It is very difficult to deceive creditors, but if the property is never found, foreclosure can be applied to the jointly acquired property.

Husband and wife are considered as two individuals. In the event of their bankruptcy, their two cases are combined.

Each specific case is individual, here the following is taken into account:

Bankruptcy and joint property

According to the Law “On Insolvency (Bankruptcy)”, in the procedure all personal property of the debtor is subject to sale. In addition, the bankruptcy estate includes things, cars, real estate that belong to both the potential bankrupt and his spouse, including the former, as common property.

Related materials

Federal Law “On Insolvency (Bankruptcy)” dated October 26, 2002 N 127-FZ

Community property is property acquired during marriage and is the joint property of the spouses

This includes the income of each spouse from labor and intellectual activity (that is, wages and other types of earnings), pensions, benefits and other monetary payments, unless they have a special purpose. Also, jointly acquired property includes real estate and all things purchased with joint income, as well as securities, bank deposits, and shares in capital. All this is joint property, regardless of whose name is entered in the “owner” column.

The following are not jointly acquired: material assistance, payments in connection with loss of ability to work and other targeted monetary tranches. For example, an inheritance or winning the lottery. As well as property acquired before marriage or with premarital funds.

Total debts

If the bankruptcy of the spouses implies the presence of a common debt, then it is divided in half, regardless of whether a divorce is filed or not. In this case, the arbitration manager has the right to include all property acquired together as part of the bankruptcy estate. As for movable and immovable objects acquired before marriage, foreclosure will be applied to them if the common property is not enough to cover the debt. It will be more profitable to voluntarily sell some objects or exchange them, since when property is seized and subsequently sold at auction, an estimated value is established instead of a market value.

What property will be taken away in bankruptcy?

It is important to understand that all of the debtor’s property falls into the bankruptcy estate. A procedure for the sale of property is introduced in relation to all things, real estate and vehicles. Let us remind you that debt write-off is possible only as a result of this procedure. But there is one important nuance: there is a list of property that is not subject to sale in the procedure. A penalty cannot be imposed on him. For example, the only housing.

Is a spouse responsible for a spouse's bankruptcy after a divorce?

Joint bankruptcy of spouses, in one procedure, is a fairly common phenomenon in judicial practice. What should a non-bankrupt spouse do in such a situation?

First, you need to analyze the current situation and evaluate the total family capital in financial terms, i.e. not only cash, but apartments, country houses, all available vehicles.

There are two options for the development of events:

After the sale of the confiscated property, its residual share is returned to the bankrupt. This option is the most common.
In the practice of judges, this option is very rare. In this case, the court recognizes the property insolvency of both spouses, and they are declared bankrupt.

1. Accurately determine the property that belongs to the bankrupt spouse.

Every married citizen can have his own personal property. It could be:

property acquired by him before marriage;
property received through gratuitous transactions (donation, inheritance);
personal items and jewelry acquired before and during marriage;
rights to the results of intellectual activity.

This stage will allow you to select the share that will not be subject to collection.

2. Select common property with your spouse

This includes all property acquired during the marriage. This includes movable and immovable property, household appliances, etc. All this may become the subject of debt repayment in bankruptcy.

3. Establish the purposes for which the borrowed money was spent

Sometimes it is not difficult to determine the purpose of borrowed funds. For example, a spouse took money to buy a vehicle and bought it. And sometimes it happens that it is difficult or even impossible to determine the purpose of the loan. In some cases, the second spouse does not know about the money received as a loan.

The answer to this question is very important. The method of foreclosure on joint property in the event of bankruptcy of spouses depends on this. If the loan was taken for the needs of the family, then there should be no problems. However, there are cases when, under the pretext of “family needs,” money is taken for completely different purposes.

Therefore, it is necessary to establish whether the money was spent specifically on the needs of the family.

4.If the purchased funds are not spent on the needs of the family

If the borrowed funds are spent on other needs (for example, the acquisition of commercial assets), then the foreclosure is applied specifically to these assets. The income received from them is not taken into account.

For your information

The creditor himself cannot foreclose on the common property of a husband and wife if only one of them is a debtor. In this case, on the basis of legislative acts, a share is separated from the common property. It is this share that can be recovered.

Allocation of a share from the common property of the spouses can play into their hands. There are cases when property divided into parts is not subject to sale in bankruptcy. For example, a private house or part of a vehicle. It is clear here that it is impossible to use some of these objects, and selling them is not an option. In this case, the creditor may be left with nothing.

5. If the purchased funds are spent on the needs of the family

In this case, the joint property of the spouses is subject to recovery during the insolvency procedure.

The best option is considered to be the acquisition of assets by spouses. In this case, in the event of bankruptcy of one of the spouses, collection can be made only on 50% of their share.

Faced with financial difficulties, especially debt, most couples decide to divorce. In this way, they want to protect themselves from debt collection. However, this is not a solution; even after a divorce, the spouses will be responsible for common debts in bankruptcy.

If a husband or wife does not pay their debts, creditors have the right to foreclose on their property. If one party is declared bankrupt, creditors have the right to demand payments from the other.

For your information

To avoid paying your ex-spouse’s debts, you should seek the help of a lawyer. With its help, you can develop a strategy that will help leave the debt on your ex-spouse.

Many married couples, upon learning about the imposition of a penalty on their property, decide to divorce. In this way they want to save at least a small part of it. It is worth noting that creditors know this scheme and want to stop it in every possible way. Therefore, in this case, getting a divorce for profit is unlikely to work.

In the case where a husband and wife decide to divorce while having debts, they must agree on their further repayment. The best option would be a 50/50 joint payment.

An individual entrepreneur is responsible for his debts. However, personal items, awards received, food and household items cannot be the object of recovery.

During bankruptcy, the family's common property is seized, after which the bailiffs determine the debtor's share in the family budget. It is this share that will be collected. If movable property was acquired by the individual entrepreneur himself, then it is also subject to confiscation.

In the event of a divorce between an individual entrepreneur and his spouse, the court must assess the degree of damage to the creditor. If the creditor loses too much, the court refuses to divide the property.

Nevertheless, the debtor’s spouse has the right to part of his property, which belongs to him by law. The husband or wife of an individual entrepreneur must apply for a share of the recovered property. In this case, either part of the property or funds from its sale may be returned to him. The debt is paid from the property of the individual entrepreneur.

We invite you to familiarize yourself with: Sample complaint regarding the quality of goods to the supplier for free

The most important difference between the bankruptcy of an individual entrepreneur and the bankruptcy of an individual is that in the first case, only the property that was acquired with the funds of the individual entrepreneur is subject to recovery.

At the moment, in case of bankruptcy, the responsibility of the spouses is divided taking into account the norms of the Insurance Code and other provisions of the law. The principles are as follows:

In marriage, a regime of joint ownership arises. When filing an application for bankruptcy, a person is required to list the jointly acquired property accumulated over the years of marriage;
Common property that was acquired during marriage is included in the application, regardless of who it is registered with: the debtor or his spouse;
The debtor is liable to creditors with that part of the property that would be due to him in the event of divorce and division. For example, if a car was purchased, and the debtor is entitled to 50% of the cost of the car. In this case, creditors do not have the right to make claims for 100% of the market value of the vehicle;
There is a list of joint property that cannot participate in the bankruptcy of the debtor. In particular, if the debtor’s spouse inherited property, under a deed of gift, or was acquired by him before marriage, it cannot be included in the bankruptcy estate and appear in the case. Such property is not legally considered jointly owned.

The bankruptcy procedure for an individual requires a competent approach. Unfortunately, mistakes made out of ignorance often lead to the loss of property that could have been saved. Before going to court, it is important to visit a lawyer who will assess the situation with an experienced eye and help you navigate and take certain measures. As a rule, the development of events is as follows:

In more than 50% of cases, bankrupts have no property, except for those protected by legislative immunity. That is, it will not be included in the bankruptcy estate and cannot be sold. The risks are zero, spouses need not be afraid.
If there is property suitable for forming a bankruptcy estate, the property of the spouses will be sold. After the sale, the second spouse receives his share, the debtor’s share goes to pay off debt obligations.
All property included in the bankruptcy estate is sold, but no return to the second spouse is made. This option is rarely used, unless there are compelling reasons.

Lawyers will also help you prepare for the bankruptcy procedure of one of the spouses. Services are as follows:

Determining the shares of the spouses that would go to them in the event of a divorce;
Allocation of common property;
Establishment and confirmation of the purposes for which borrowed funds were spent. If the funds were spent on the needs of the family, all joint property is at risk of seizure and sale.

Divorce and division of property during bankruptcy
Bankruptcy of one of the spouses after divorce.

Divorce proceedings during bankruptcy are not uncommon. If some families cannot withstand financial and material deprivation, others approach the matter more calmly. In the latter case, the decision to divorce is made to minimize the risks of loss of property.

Sometimes there is a third option - during a divorce, spouses enter into an agreement that states who remains responsible for paying debts. Subsequently, the potential bankrupt applies to the CA, attaching to the package of documents an agreement according to which 100% responsibility for paying debts lies with him.

Are the methods listed above effective and do they work in practice? Let’s find out.

Divorce in bankruptcy. The application for divorce is considered in another court, and after the division of property it is necessary to submit a court ruling to the Arbitration Court. But this has virtually no effect on the bankruptcy of an individual: as we said, the liquidation estate includes the property of the bankrupt, and not his wife. But there are nuances here: if, say, a plot of land belonging to both spouses is included in the mass, then it is necessary to wait for its sale. It will not be possible to “take out” the area involved in the sale of property. Documents on the division of property in favor of the bankrupt spouse will not help here.
Divorce and subsequent bankruptcy. Since the property has already been divided, the ex-husband’s bankruptcy will not affect his wife’s property in any way. The time period after the divorce does not matter - a month, a year, 5 years can pass.

Debtors sometimes resort to incredible tricks to protect their property. Marriage contracts are concluded before bankruptcy, donations in favor of children and the wife, division agreements, where (attention!) 100% of the debts are transferred to the bankrupt, and 100% of the property is transferred to the bankrupt’s wife.

Divorce in bankruptcy. Even if the procedures were initiated at the same time, they will take place in the following order of priority: first, divorce and division of property, then bankruptcy. The financial manager will not be able to allocate the debtor's share if it is not completely clear what exactly belongs to him.
Divorce in bankruptcy will solve practically nothing - the financial manager has the right to take over the wife’s property in the event of her husband’s bankruptcy, as well as vice versa.
It is worth considering that divorce and division of property during bankruptcy can be regarded as an attempt by the debtor to hide part of his real financial condition, and this is fraught with criminal prosecution.
Property of former spouses in bankruptcy. When submitting an application to the court, a citizen must also provide a copy of the marriage or divorce certificate if less than 3 years have passed since the registration. This is due to the fact that the court can cancel all transactions with the bankrupt’s property carried out over the last 3 years.
This includes the sale of the joint property of the spouses, and therefore the property of the former spouse. For example, the property of a wife during the bankruptcy of her ex-husband can be sold to cover debts. However, this only applies to property acquired during the marriage.
Whether the spouse is responsible for the spouse's bankruptcy after the divorce or whether the spouse is responsible for the husband's debts after the divorce, the answer is clear - if less than three years have passed since the divorce, then yes.
Mortgage after divorce.
This is a separate question altogether. The fact is that there is such a thing as subsidiary liability. That is, if one spouse stops paying the loan, the other must pay out of his own pocket. Even after the divorce. Accordingly, if two former spouses, while legally married, took out a mortgage loan, then after a divorce and division of property it will not be possible to simply “forget” about it. In this case, both husband and wife will be responsible with their property.

Bankruptcy and marriage contract

In theory, an arbitration manager who receives control over all the property of a potential bankrupt for the duration of the procedure must sell all joint assets and give 50% of the funds received to the debtor’s spouse. And this can be avoided only in one case: no later than three years before the start of the procedure, the spouses managed to conclude a marriage contract, which clearly states what belongs to whom. In this case, only the bankrupt’s belongings will be sent for sale. Everything else will remain untouched.

We recommend that you read Financial Manager. One of the key figures in the bankruptcy case

How to save the maximum when your spouse goes bankrupt?

Above we described how everything should happen in theory. However, in practice the situation does not look so bad.

The property of the bankrupt's spouse is not examined as part of the procedure

Provided that the bankruptcy process of an individual is initiated by the citizen himself, he himself chooses the arbitration manager with whom he will be comfortable working. Thus, if you do not wait for creditors to sue, but initiate bankruptcy proceedings yourself, you can save the maximum. The arbitration manager will act in the interests of the debtor, which means he will not be as zealous in searching for property through registers and organizations as a manager hired by the bank will do. Problems in this case can only arise with individual creditors. However, in the hands of competent lawyers, such situations can also be resolved. The National Bankruptcy Center has extensive experience in successfully completing such cases.

Dmitry Tokarev
General Director of the National Central Bank “Usually, if one of the spouses goes bankrupt, the property of the other is not taken into account. But there are also exceptions. In practice, we had a similar case: a creditor, who is an individual, after the court decided to completely write off the client’s debts, filed an appeal and asked to check all the property again. The judges' opinions were divided. But NCB lawyers foresaw this scenario and provided all the necessary information. As a result, the creditor was refused, and the client was completely freed from his debts.”

What happens to the property

It is unknown how the bankruptcy procedure will proceed - each specific case is strictly individual. It depends on what the spouses’ shares are in the listed valuable property and family assets, as well as the form of ownership of its individual objects.

If the apartment has a mortgage

If they have a mortgage on their home, spouses should be wary of losing it. The tragedy for the family will also be that even young children, according to current legislation, will be deprived of a roof over their heads if an apartment or house purchased with a mortgage is taken away to pay off the debt. In this case, the court may decide to transfer minors to guardianship authorities, with subsequent placement in orphanages. That is, the presence of a mortgaged property will divide the degree of responsibility for repaying the debt among both spouses.

Common property

In cases where the property is registered in the name of a spouse who is not the borrower, and the property was acquired during marriage, it will be sold and the money will be divided equally. The debtor's share will be used to cover the debt.

During a divorce, so that the interests of the other half are not harmed during the bankruptcy procedure initiated against one of the spouses, the marriage is initially dissolved, and then a bankruptcy order is issued and the financial manager determines the defendant’s share in the bankruptcy estate.

The court will check whether the divorce is “fictitious.” If the divorce between the spouses is valid, then only the property assets of the debtor will be put up for sale.

“I’ll just transfer everything to my wife!” or the main mistake of a family bankrupt

Finding himself in a difficult financial situation, a person begins to panic and goes to great lengths to save his property. Panic is not logic's best friend. This is where the main mistakes of a potential bankrupt are made. Husbands transfer apartments to their wives, wives transfer cars to their husbands. People quickly enter into prenuptial agreements and hope that this will help them resolve the situation and leave creditors with nothing. As practice shows, such stories quickly become apparent, and the family loses property. Even children are not spared: property donated even to small children before bankruptcy is easily seized and sent to the bankruptcy estate.

During the bankruptcy process of an individual, all transactions over the last three years are checked. And if any of them look suspicious, they are immediately disputed, and the property is confiscated

Therefore, the first thing a family who wants to preserve their property in the event of bankruptcy of one of the spouses should do is contact a reliable company that can effectively carry out the procedure at minimal cost. You can always contact the National Bankruptcy Center for a free consultation.

There is no point in shelving: if the creditor goes to court first, you will be unable to save almost anything.

Mechanism for protecting property from foreclosure

Given the poor development of legislation on the financial insolvency of citizens, the question of how to preserve property in the event of bankruptcy of individuals becomes especially relevant. First of all, the answer to this question is of interest to the second spouse and other members of the debtor’s family.

There are two main options for protecting property from inclusion in the bankruptcy estate and subsequent sale. The first and simplest is concluding a marriage contract.

The contract can be signed by the parties both before the marriage and at any time. The provisions of the contract may apply to property already owned and to property that is planned to be purchased.

The second answer to the question of how to preserve property during bankruptcy involves the introduction of the so-called separate property regime. Its effect extends to almost any type of property, from personal belongings to intellectual property. Naturally, these include the most valuable real estate in the event of bankruptcy of individuals.

The most reliable way of protection is considered to be a marriage contract, which is drawn up upon marriage or long before the bankruptcy procedure is launched.

Any actions of spouses, one of whom is a debtor, taken immediately before the occurrence of financial obligations, are very carefully considered by creditors and the bankruptcy trustee. Documents drawn up and signed after debts appeared are of even greater interest.

Therefore, to effectively protect property from foreclosure during bankruptcy proceedings, it is necessary to take care of this in advance. The second prerequisite is the proper execution of documents.

It is important to remember that the financial manager and creditors have the right to challenge any deal the debtor entered into within three years before the opening of bankruptcy proceedings.

A common mistake is selling assets at a reduced price. This transaction scheme allows the debtor to receive part of the funds in cash against a receipt, and then dispose of the money at his own discretion without control from the manager.

Another basis for declaring a transaction invalid is the preference of one creditor, which entails damage caused to others. To make such a decision, any of several conditions must be met:

fulfillment of the debtor’s obligations to the creditor if they arose before the implementation of the disputed transaction;
changing the order of priority for repayment of the debtor’s financial obligations established by the bankruptcy trustee;
early repayment of debt to one creditor in the presence of unfulfilled financial obligations to others;
violation of the priority order of fulfillment of financial obligations established by the requirements of current legislation.