What happens to a bankrupt’s home?

Bankrupt's home

The bankrupt’s share in his or her home is transferred automatically to the trustee on appointment. There is a requirement on the trustee to take action, within 3 years from the date of the bankruptcy, to do something about this share.  If no action of this kind is taken the share in the property will automatically be transferred back to the bankrupt.

Legal action by trustee

Within 3 years of the date of the bankruptcy order the trustee must do one of the following:

  • Sell the bankrupt’s share. Where the property was jointly owned by the bankrupt and his or her spouse or partner, the trustee will normally invite the co-owner to purchase this share after obtaining a valuation and taking into account the potential costs of sale. If the spouse or co-owner can afford to do this then the share will be transferred back to them. If they cannot afford this, sometimes another member of the family or a friend can step in and do so.
  • Apply to the court for an order for possession and sale of the property. The trustee will normally wait for at least a year before making this application because, after that time, the interests of the creditors will take priority over the bankrupt’s family unless there are exceptional circumstances.
  • Place a charge on the property. If, for any reason, the trustee cannot apply to the court for an order for possession and sale, an application can be made to the court to place a charge on the property to protect the bankrupt’s estate. The value of the charge is limited to the trustee’s share of the property at the date that it is registered. The estate is entitled to interest on the share until the property is sold, but any increase in the value of the property will be for the benefit of the bankrupt.

If none of these things are done, or an application to the court is dismissed, the property will automatically be transferred back to the bankrupt on the third anniversary of the date of the bankruptcy order. The court may dismiss an application for the sale of a property if its net equity is below £1,000 or if the trustee has failed to comply with the rules on giving notice to the bankrupt, co-owners and occupiers.

Claims in relation to the bankrupt’s home

Sometimes claims are brought in relation to the bankrupt’s home.

  • Disputes may sometimes arise in relation to the legal ownership of the property of a bankrupt. A spouse or partner may argue that the property was held on trust for them or a co-owner may claim an increased share of the property. The court will look at the financial contributions of the parties to the purchase of the property, to the payment of the mortgage and other expenses. It will also look at the circumstances of the relationship to see in what shares they intended to hold the property.
  • Where a bankrupt’s spouse or partner’s share of a jointly owned property has been charged in respect of the bankrupt’s debts, adjustments can be made to take account of this.
  • In the case of divorce, property adjustment orders are made by the courts. How such an order, or an agreed property settlement, will be treated in the case of a subsequent bankruptcy will largely depend on the timing of events.

Items of this nature and certain other specified property cannot be taken by the trustee in connection with the bankruptcy.

Taking legal advice

Legal issues can arise in connection with property claimed to be part of the bankrupt’s estate and this may have a significant bearing on the outcome of the bankruptcy.  Our solicitors are able to provide advice on the many issues that can arise in this area.

For more information proceed to The bankruptcy estate