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Q MY HUSBAND has been declared a bankrupt since 2002 because of credit card debts.

This happened after he was out of a job for six months and the bills piled up.

We also have a renovation loan of about $45,000.

As his wife and guarantor for the loan, I was harassed by creditors and was eventually made a bankrupt too in 2003.

We are not on speaking terms anymore. If I divorce him, will I be discharged from bankruptcy?

After our divorce, can he be liable to provide maintenance for our children who are below 12 years old?

His total debt is close to $200,000.

His monthly instalments to the Official Assignee were $500 (first year), $550 (second year) and $600 (third year).

The instalments are currently $700 per month.

A I note that you were made a bankrupt because you had stood as a guarantor for your husband’s renovation loan.

The lender had a perfectly legitimate legal basis to look to you for your husband’s outstanding loan.

When you became a guarantor for him (the principal debtor), you entered into a separate contract with the lender.

Your obligation to pay under this contract of guarantee was quite distinct from the principal debtor’s obligation.

It is worth repeating that many people assume the obligations of a guarantor without fully realising or appreciating what a burdensome contract they are entering into.

It is often said that a guarantor has everything to lose and nothing to gain.

You will not be discharged from bankruptcy by divorcing your husband.

A discharge from bankruptcy may be done in two ways, either by an application to court or by a certificate from the Official Assignee (OA).

You, the OA or any person with an interest may make an application to court.

The court may grant either an absolute discharge or a conditional discharge.

If you are granted an absolute discharge, you would be free from any further obligations.

But under a conditional discharge, the court may attach conditions such as requiring you to pay dividends of at least 25 per cent as well as make contributions from your post-discharge income.

The court will take into account such factors as your age, the cause of the bankruptcy and your blameworthiness in incurring the debts, the number of creditors and the value of your assets against your liabilities.

For a discharge by certificate from the OA, the OA generally reviews all cases where there is a bankruptcy of at least three years and the debts are less than $500,000.

The OA also takes into account similar factors as a court also looks at the bankrupt’s conduct and level of cooperation.

In both situations, the creditors have to be notified and they are entitled to object.

If the OA rejects the objections, the creditors can then go to court for an order prohibiting the OA from granting the certificate.

As both situations involve the exercise of a discretion, the interests of the bankrupt are balanced against those of the creditors, the public and commercial morality or common honesty.

While it is true that a bankrupt’s property automatically vests in the OA, the OA is not automatically entitled to a bankrupt’s income.

He has to apply to the court for an order to receive the bankrupt’s salary for distribution to the creditors.

The rationale for this is that the bankrupt must be allowed to support himself and those he has a legal duty to support.

He cannot be converted to a mere slave or a personal chattel of creditors.

Therefore, applying the same principle, because your husband has a duty to maintain his children until 21 years of age and in some situations, even longer, there is no reason why he cannot be ordered to pay them maintenance.

Gina Ho

Lawyer

Amolat & Partners

Source : Sunday Times - 5 Nov 2006