The effect of bankruptcy on the family home

If you are declared bankrupt, your estate vests in the Trustee in Bankruptcy, and this includes any interest you have in a dwelling house, whether solely or jointly owned. The Trustee may have to sell the property to pay your debts.

If the dwelling house is your sole or principal residence, the Trustee has a three-year period in which to sell the property or to apply to the Court for an Order for Possession or Sale. If the Trustee does not take this action by the expiry of the time limit, the property will automatically re-vest in you. The three-year period runs from the date of the bankruptcy order or the date the Trustee was informed of the interest in the property, whichever is later.

Issues regularly arise when a Trustee wants to realise the value in a home that is jointly owned by the bankrupt and his/her partner or spouse. Unless the non-bankrupt partner/spouse can make an offer to purchase the bankrupt’s share, the Trustee may ultimately have to force the matter by taking court action.

If the property is not your sole or principal residence, the three-year limit does not apply, and the Trustee has a longer period in which to deal with the property.