Bankruptcy & Your Home

Introduction Limited Company Insolvency Creditors Voluntary Liquidation Compulsory Liquidation Administrative Receivership Dissolution Sole Trader and Partnerships Bankruptcy Your Home Print option

Where you own or have an interest in your home and wish to retain it, we would strongly urge you to engage BRA to undertake our free business review in order that all the alternatives to bankruptcy can be considered.

The Effect Of Bankruptcy On Your Home

Immediately you are made bankrupt, the interest in all your assets including your home vests in the Trustee in Bankruptcy, other than those assets specifically excluded by Section 283(2) of the Insolvency Act 1986, i.e tools of the trade and household items.

The Trustee in Bankruptcy is under a duty to realise whatever equity is in your home for the benefit of your creditors, although it is often possible to negotiate a buy back of this equity by your spouse or other family members through remortgaging or the introduction of funds to the bankruptcy.

If there are dependents living in the home, i.e. children under the age of 18 or still within secondary education, the Trustee will not obtain possession of the property and an order for sale within the first 12 months of your being made bankrupt. However, thereafter the creditors’ interest generally takes precedence unless specific grounds such as disability are applicable, whereby extensions may be granted to find alternative accommodation.

Although at the time of your bankruptcy there may be no equity in your home for the Trustee in Bankruptcy to realise, it remains crucial for the spouse or other family member to seek to purchase the Trustee’s interest for a nominal amount. In order to agree to this the Trustee will in addition to the nominal payment expect his cost for dealing with the transaction to be paid.

Failure to acquire the Trustee’s interest has proved extremely costly to many bankrupts whose property has increased in value since the making of the original order. Beware, although you may be allowed to continue to live in the property and consequently you and/or your spouse continue to pay the mortgage, the Trustee’s interest in it remains despite this. Even your automatic discharge does not bring the Trustee’s interest to an end. Many bankrupt’s have over the past 5 years or so, seen their property prices rise dramatically and this combined with reduction in the capital balance outstanding to the mortgage company as a consequence of your continued payment of it, has resulted in Trustees requesting payment of the equity where there historically had not been any. If unable to raise the necessary finance the Trustee has applied for possession and sale of the property.

Many people in financial difficulty are of the false illusion that by transferring their interest in the home to their spouses name it will avoid the consequences of losing it in the event they are made bankrupt. Beware, there are wide ranging provisions within the Insolvency Act 1986 enabling a Trustee in Bankruptcy to overturn the transfer of property to a spouse or any other connected party and this can be back dated to at least 5 years prior to the bankruptcy order being made and in some circumstances where it can be proven that the intention was to defraud creditors, even longer.

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