In these troubled times there appears to be an increase in the number of people becoming bankrupt.
In family cases it may be that your former spouse was ordered to pay you financial settlement but he/she has now declared themselves bankrupt and you are wondering where this leaves you with regards to receiving the settlement, if any.
The legal position is as follows.
After a bankrupt has had all its debts wiped clean they will apply to have their bankruptcy discharged.
Once the bankruptcy is discharged you cannot resurrect any previous debt whatsoever However, if a bankruptcy finishes (is discharged) it does not necessarily mean that that person will be free from their liabilities of family court orders.
The question of whether or not they are free lies at the Court’s discretion.
So what are the conditions that might lead the Court to discharge the bankruptcy and discharge all liabilities of any family court orders?
The answer is that Parliament have not given any further definition in law nor is any specific guidance given to the Court as to how such discretion should be exercised to discharge any family court orders. However, the recent case of Hayes v Hayes does shed some light.
In this case the Registrar was aked by the husband to be released from the family related debt on the basis that the Insolvency Act 1986 gave the Court the requisite discretion to do so. On an appeal the Court recognised that the lack of any legal guidance or authority meant that it had an unfettered discretion to discharge debts under this provision. The appeal was dismissed, the Registrar’s decision was upheld and the family order survived.
The Court was wary of the fact that people may use this provision as mechanism to “get out of” paying out a financial settlement to their former spouses. No doubt this will give comfort to some people in cases similar to the above where their former spouse has declared bankruptcy.
A reported case in which a debt has been discharged under this provision of the 1986 Act remains, presently, at large, although it is fair to assume it is only a matter of time before one does succeed.
Zulekha Satar is a solicitor at the Soloman Partnership.