The effect of bankruptcy on the family home

When an individual is declared bankrupt, their estate vests in their Trustee in Bankruptcy. This includes any interest that the bankrupt has in a property, irrespective of whether the property is solely owned or jointly owned. It is likely that this property will need to be sold in order to realise assets to contribute towards repaying the bankrupt’s creditors.

If the property is the bankrupt’s sole or principal residence, the Trustee in Bankruptcy has a three-year period in which to sell the property or apply to the Court for an Order for Possession or Sale, or secure the interest. If the Trustee in Bankruptcy does not take this action by the expiry of the time limit, the property will automatically re-vest in the bankrupt. The three-year period runs from the date of the bankruptcy order or the date on which the Trustee in Bankruptcy 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. Where the property is jointly owned the interests of the creditors become paramount after the period of one year from the date of bankruptcy. In the absence of exceptional circumstances, interests of the creditors will override the those of the bankrupt and any co-owner. Ultimately, therefore, unless the non-bankrupt partner/spouse can make an offer to purchase the bankrupt’s share, or the bankrupt and co-owner agree to voluntarily leave the property, the Trustee in Bankruptcy will have to force the matter by taking Court action for possession and sale of the property.

If the property is not the sole or principal residence of the bankrupt (for example an investment property), then the three-year limit does not apply.

It is essential for anyone who finds themselves in this situation to obtain advice as soon as possible so that all options for a solution can be explored. Our sympathetic team will help to steer you through this difficult and emotional time.