New Zealand Law
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I am just reading this now
Answering the questions in the order that you have placed them,you are not liable to pay for your wife's accident. Husbands are are not liable for their wife's debts and she is not liable for your debts. She could apply for bankruptcy if she is unable to pay this debt. You have no obligation to make any payment as the insurance company is suggesting. They cannot force you to pay. If she applies for bankruptcy, then the debt will be written off. If she has any assets, like a half share in your house, that would however be caught up in her bankruptcy. But if she doesn't actually own any assets, and you do not own a house but you are tenants, then I suggest you tell the insurance company that she is not working, has mental health issues, and does not have the ability to pay, but that if you force this, she will just apply for bankruptcy. Either way they will get nothing
I thought she must have hit a very expensive car, and that does change my answer.I am not sure it is worth going bankrupt for $5600 but depending on your circumstances, there is an easier alternative called the No Asset Procedure which may also apply. This only lasts for a year. So you can tell the insurance company if they push this, she will apply for the No Asset Procedure. She will only be eligible for this if she actually has no assets.
She would be bankrupt on her own, and it would not affect you and the family. But the No Asset procedure would be better, as that is for small debts like this.
To enter she must...
She wont have to pay the debt. But why dont you write explaining her lealth, her lack of income, and say if they try and make her pay, you are concerned about the stress on her health and that she will just file for insolvency if they push this.