Go Bankrupt if Living with Parents

Go Bankrupt if Living with Parents

If you are living with your parents and struggling with debt bankruptcy could be a sensible solution. Normally there will be no impact on them at all.

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Do your Parents have to pay your Debt if you go Bankrupt?

When you go bankrupt no-one else becomes liable for your debts. As such if you are living with your parents they will not have to pay the money you owe.

If they own their property it is not at risk. You will have to state the address as it is where you are currently living. However their home is not included in your application as it is not your asset.

In the same way non of their belongings are at risk. In bankruptcy only things that you personally own are considered by the Official Receiver. Even then you are allowed to keep all of your reasonable household items.

Your parents would only become liable for your debts after you go bankrupt if they agreed to act as a guarantor for any of your creditors.

Is your Parents’ Credit Rating affected if you go Bankrupt?

After you go bankrupt a record is added to your credit file. As a result your credit rating is negatively affected. It will then be more difficult for you to get new credit for the next 6 years.

However your parents’ credit rating is not affected. Credit files are individual. If one person living in a property goes bankrupt the record is placed on their file alone. Nothing will be shown on the files of other people living in the same home.

You may be concerned that your parents property will be black listed. This does not happen. There is no black list of properties where bankrupt people live. It is only your individual credit file which is affected.

If you go bankrupt neither your parents property or personal credit ratings will be negatively affected or blacklisted.

What Living Expenses are you allowed if Living with Parents

One section of the bankruptcy application form which is critical to get right is your income and expenses budget. The Official Receiver will use this to decide whether you need to make ongoing payments to your debt.

If you are living with your parents you should complete your living expenses budget as if you were living in lodgings. You are allowed to include a reasonable amount for paying them rent based on the going market rate for lodgings in your area.

You are also allowed an appropriate housekeeping and clothing allowance (i.e. for a single person or a couple depending on your circumstances). Your parents are not expected to support you by feeding and clothing you for free.

You are allowed to pay rent to your parents if you go bankrupt in just the same way as if you were living in lodgings.

Can you Move out of Home after you are bankrupt?

You are free to move out of your parents’ home after you are bankrupt. However it will need careful consideration. If you want to move to your own place you will first need to make sure you can afford the new expenses you are likely to incur.

It is also important to consider your poor credit rating. You are likely to fail a credit check undertaken by a prospective landlord or letting agent. As such you may need to offer someone who can act as a guarantor for the rent.

There is nothing to stop you moving out of your parents property and in with your partner. However you must remember to inform the Official Receiver of your change of address. They are then likely to ask you to complete a new income and expenses budget so they can review your disposable income.

Your disposable income might change as a result of moving out of your parents home. If so the amount you are paying towards your debt might also be affected.

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6 thoughts on “Go Bankrupt if Living with Parents

  1. Dave says:

    Hi

    I have a friend who has lost his flat and wants to move in with me for a year so he can sort his finances. Part of this involves going bankrupt but obviously he will be at my address. Will this effect my credit or address as I have only in the last couple of years been able to sort my own?

    1. Hi Dave

      You have no need to worry. If your friend goes bankrupt while he is living with you it will have no affect on you or your property (just like if he was living at home with his parents as discussed in the above article). Of course his credit rating will be affected but it will not “rub off” on you in any way.

  2. Nicola says:

    Hi I’m considering bankruptcy, I haven’t any assets but have lived in my partner’s property for 9 years. It’s in his sole name and he pays the mortgage. I’ve not made any payments towards mortgage nor spent any money on it other than paying living costs, will this be affected? Thanks.

    1. Hi Nicola,

      You do not need to worry. Given you are not married and have never made any payments towards your partner’s mortgage (or paid for any significant home improvements) you have not got any financial interest in his property. As such if you go bankrupt it will not be at risk.

      Further information about how your partner could be affected if you go bankrupt can be found here: My partner and bankruptcy

  3. Nicola says:

    Hi James

    Thanks for your reply. We are married (nearly 7 years). I’ve always been on a part time wage and had old debts which was the reason why I have not paid into the mortgage.

    Thanks for your help.

    1. Hi Nicola

      Given you are married I would have to advise against you going bankrupt. The problem is that even though you have never contributed towards the property the fact you are married may mean the official considers you have a financial interest.

      Now it may be that the official receiver would agree with you and take no further action. However there is a risk that they would argue the other way and try and push for some of the equity to be released and paid to them. If this were the case the only way you could argue against it would be in court. If you do not want to take this risk I would advise against bankruptcy and suggest you consider an IVA.

      With an IVA there would be no issue because your husband’s property could be excluded from the arrangement.

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