Bankruptcy and Homeowners

One of the key considerations when an individual is declared bankrupt is what will happen to their home. In the past, it has generally been believed that the property will be sold to raise funds to help repay the creditors, however this is not always the case.

Asset Control

When declared bankrupt, the debtor must sign all their assets over to the Trustee, this will often be the Official Receiver (OR) or an appointed licensed Insolvency Practitioner (IP). Property owned by the individual is considered an asset, and if it is believed that the only way to raise funds to pay the creditors is to sell, then that is often what will happen, along with any other assets of reasonable value. The home may not be sold straight away, but the Trustee will keep the rights usually for 3 years (from the date bankruptcy occurred). This may be extended if the court has ordered the sale, or if the debtor has not told the trustee about an owned property.

Exceptions

There are some exceptions which may assist in delaying or preventing the sale of the home:

Value of equity in the property is less than £1000. Irrespective of the total value of the property, if the equity is less than £1000, then it is not worth the forced sale.
The court may decide there are exceptional circumstances, for example if it is a family home with children, then the sale could be delayed for up to a year in order to allow for rehousing.
It is possible that a partner or friend could 'buy back' the amount of equity available (where it is over £1000).

Joint ownership

Where the property is in joint names, the Trustee will usually take into account 50% of the value of the equity when calculating assets. They will not take over the property as such, but there may be some restrictions imposed. It is possible that they could ask the court for an order that demands the sale of the property, at which time they will take the calculated share of the equity. The Trustee will also be informed under these restrictions, of any attempt to sell the property by the individual. What the debtor cannot do is sign over their share of the home over to their partner, or anyone else. Even if this was done up to 5 years prior to the bankruptcy, then the funds could still be chased.

Tenants

Those that don't own property and live in rental accommodation should always check their tenancy agreement, as sometimes there can be a clause which could affect the contract. It is always advisable to seek advice.

Alternatives to Bankruptcy

For those that are concerned they may have to sell their homes, it is important to seek advice before making any decisions. There are several alternative options that may be more suited, such as Individual Voluntary Agreements (IVAs), Debt Management Plans (DMPs) or even Debt Relief Orders (DROs), though DROs are unlikely to apply where the debtor owns their home. For further information, contact a licensed Money advisor or Insolvency Practitioner, or seek help from one of the non fee charging services available, such as the Citizens Advice Bureau (CAB), National Debtline or the Consumer Credit Counselling Service (CCCS).

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