Q If one spouse has a debt they never told the other spouse about – and the debtor spouse dies, will the surviving spouse have to settle that debt and if so, under what circumstances might this be? it happen? Joan, Co Wicklow
A If an insolvent spouse dies, the remaining spouse has no liability for that debt. However, if the insolvent spouse had assets at the time of death, it may be necessary to take out probate and pay off creditors.
Typically, family homes are owned by married couples in joint ownership. (Co-ownership describes a situation in which property is owned jointly by spouses or civil partners.)
The most common problem affecting a family home where one spouse is insolvent is that the creditors of the insolvent spouse can obtain judgments and register judgment mortgages on the spouse’s interest in the family home. A judgment occurs when a person fails to pay a debt and the creditor then goes to court to obtain a judgment that the person owes the debt. Once the creditor has obtained a judgment, the creditor can now use different means to obtain the money from the debtor. A judgment mortgage is where a creditor registers a charge on a property owned, or partially owned, by the debtor.
If an insolvent spouse dies and there are judgment mortgages registered on that spouse’s interest in the family home, those judgment mortgages “lapse” – or in other words, no longer exist. Generally speaking, it is nearly impossible for judgment mortgagees to enforce the sale of a modest family home. The reason for this is that the Irish courts have determined that in relation to judgment mortgages, an innocent spouse should not be left homeless by reason of a debt incurred by their spouse.
One issue to watch out for though is that if the solvent spouse predeceases the insolvent spouse and their assets are transferred to the insolvent spouse under probate, those assets may be taken by the insolvent spouse’s creditors. One way to deal with this scenario would be for the solvent spouse to transfer the assets to their children or into a trust. Remember that under probate rules, a spouse is legally entitled to one-third of the deceased spouse’s estate.
Resolving Joint Mortgage Issues Post-Split
Q About ten years ago I took out a mortgage with my then girlfriend to buy a house. We both lived together in this house for about nine years – however, we separated last year and my ex left the property. I continue to live there but I’m struggling with the mortgage payments. Because my ex is paying rent elsewhere, she can’t afford to contribute to our condo mortgage payments. Also, because the split was acrimonious, we are not on good terms and cannot come to a resolution on what to do with the property we purchased. I’m not convinced that I will be able to pay the mortgage repayments any longer. What are our options? Tommy, County Cork
A The solutions available to you will depend on whether or not the property is in negative or positive equity. Equity is the difference between the current value of your home and the amount you owe on it. If your home is in negative equity, the mortgage is worth more than the value of the property. If your home has positive equity, the value of the property is worth more than the mortgage.
Article 31 of the 2009 law reforming land law and transfers provides for a mechanism for resolving conflicts of co-ownership. Such a mechanism could be a way for an unmarried couple who have separated – and who are not in negative equity – to agree on joint ownership. Once each party’s ownership percentage of the equity in the property is resolved, the next step is to decide whether or not the property should be sold, or retained by one of the parties. If it is decided that one party should keep the property, the other party should be paid. Stamp duty will apply to any purchase of the other party’s property. If there is a mortgage, the bank must be asked to release the outgoing owner from the mortgage. This can be difficult to achieve, as the remaining owner must convince the bank that they are able to meet the Central Bank’s mortgage guidelines.
For a couple who have separated and have negative equity, a personal insolvency arrangement (PIA – a type of debt agreement) might be the best way to overcome issues with their joint mortgage. An obvious solution for a couple with a negative net worth is to do a PIA and reduce the mortgage to the market value of the home – and restructure the longer-term mortgage to make it more affordable. In some cases, there will be no viable alternative to selling the home. If the house is to be sold, you should explore the option of the Mortgage to Let system – where the house is sold to the County Council or an approved housing body and re-let to the person remaining in the house.
With a PIA, you don’t necessarily need the agreement of both parties to a mortgage to make a deal. Typically, you need two signatures to find a solution to a joint mortgage problem – although that’s not the case in a PIA. We have done PIAs with only one party to the agreement.
Getting a Mortgage After Bankruptcy Discharge
Q I was recently discharged from my bankruptcy. I’m getting my finances back on track and have had a good steady job for the past two years. I am currently renting but would like to buy my own house soon. Do I have a chance of getting a mortgage in the future? If so, how long should I wait before I start approaching banks and how could I improve my chances of getting a mortgage despite my recent bankruptcy? Declan, County Kildare
A The good news is that banks are willing to give mortgages to people who have already gone bankrupt.
The first step to take is to determine if the Credit Registry (CCR) correctly indicates that you no longer owe any amount relating to your pre-bankruptcy period. You can get a copy of your credit report by applying online at centralcreditregister.ie.
If the register indicates that you still owe such amounts, you must take the necessary steps to correct them. At the start of the CCR’s operation, it was difficult to get changes made, but it is easier now because banks have a better appreciation of their reporting obligations.
The next step is to determine if you are financially able to take out a mortgage to buy a home. The main factors for taking out a mortgage are the initial deposit and proof of stable employment. Since you have recently been discharged from your bankruptcy, you should have little savings – so you will need to save the necessary deposit or, alternatively, receive financial assistance from your family members for the initial deposit.