WILL I LOSE MY HOME IF I GO BANKRUPT?
Declaring bankruptcy will affect your home in different ways, depending on whether you rent or own it.
This area can be complex, so before you consider bankruptcy, read both the advice below and our main bankruptcy advice page. Call our advice team if you need further help or if your home does not fit into one of these categories.
Advantages of bankruptcy
- The money you owe can be written off
- Any court action relating to your debts can be called off
- You may be able to keep some belongings and have a reasonable amount to live on
- You may not have creditors chasing you
Disadvantages of bankruptcy
- Your credit rating will be affected for 6 years
- Any businesses, cars and luxury items may have to be sold
- You may lose your job as some occupations refuse to employ those made bankrupt
- If you have a high income, you will be asked to make debt repayments for 3 years
Will I lose my home if I am declared bankrupt?
The answer depends on a number of factors, such as whether you rent or own your home, and whom you live with.
Renting a property
If you rent your home, it is unlikely that you will lose your home since the Official Receiver has to let you keep enough money to pay for essential things, such as food and rent. If your tenancy agreement states it is an ‘assured,’ ‘protected’ or ‘secure’ tenancy, the Official Receiver should not tell your landlord you have been made bankrupt. Therefore, as long as you continue to pay your rent in full and on time, it is unlikely that you will lose your home.
However, the situation may be different if you have fallen into arrears. In such a case, your landlord may seek to obtain a possession order against you.
Owning your property
The situation becomes slightly more complicated if you own your property and you may be forced to sell your property to pay your creditors. It is also important not to try to give away your property, or sell it at an undervalue, as not only could you be fined or sent to prison, but the Official Receiver could bring proceedings against you and the third party to reverse the transaction. However, the Official Receiver cannot sell your home if you do not own it or have any beneficial interest worth more than £1,000.
That said, in certain circumstances you can seek to delay or stop the sale of your home. Some circumstances in which this may happen are as follows:
- Someone else has a legitimate interest in the property, such as a partner who jointly owns the property;
- A third party will purchase your share of the property for market value;
- You have negative equity in the property so there will be no surplus to pay off the bankruptcy debts.
It is also worth noting that the Official Receiver will seek to sell the bankrupt person’s property after 1 year. You can apply to extend this period if you can show “exceptional circumstances” such as if you, or someone you live with:
- Is over 70 years old;
- Is disabled and the property has been specially adapted;
- Has mental health issues.
The remainder of this note will deal with circumstances where a property is jointly owned by a partner who is not subject to a bankruptcy order and there are no issues of transferring the property at an undervalue.
Jointly owned properties
If you jointly own a property with someone who has been declared bankrupt, and that person’s interest exceeds £1,000, you may be forced to sell the property after 12 months of the person being made bankrupt unless any of the exceptional circumstances above apply.
The Official Receiver would only be entitled to the equity belonging to the bankrupt person if the property is owned 50/50, for example, then the non-bankrupt party can keep 50% of the proceeds of sale (i.e., the balance after the sale costs are taken into account).
However, if you or the person made bankrupt refuses to sell the property, the Official Receiver can make an application for an Order for Sale, which is likely to diminish the equity in the property.
Alternatively, you, or someone you know, could seek to purchase the beneficial interest of the bankrupt person’s share of the property from the Official Receiver. So long as you offer a market rate, it is likely the Official Receiver will accept this.
It is also important to note that the Official Receiver has only 3 years from the date of the bankruptcy order to take the step to realise the equity in the property. If the Official Receiver does not do this, then they are unable to sell the property. Such a step might include:
- Applying to Court for a possession order and / or an Order for Sale or a charging order;
- Sold the beneficial interest to a third party, such as partner or family member;
- Come to an arrangement with the bankrupt person to pay off the value of the beneficial interest in instalments.
BANKRUPTCY AND MY MORTGAGE
If you live in a mortgaged property with some equity, the official receiver will normally sell it. Some money from the sale will be used to pay the official receiver’s costs and some will be shared out among your creditors.
If you own your home in your sole name, the official receiver will want all of your equity. If you own your home jointly, they will only want your share of the equity.
WILL I BE ABLE TO RENT A NEW HOME DURING BANKRUPTCY?
You can apply to rent a home from a private landlord during or after bankruptcy. However before accepting you as a tenant, the landlord might check the Insolvency Register or credit file. This could mean you find it hard to rent a home, or you could be asked for a guarantor or larger deposit.
WHAT IS A BENEFICIAL INTEREST?
If you live or have lived with a partner who owns property in their sole name, you may have a ‘beneficial interest’ in it. This is where you are entitled to a share of the equity because of financial contributions you have made to the property. If the Official Receiver thinks you have a beneficial interest, they can ask for the equity to be paid towards the bankruptcy. Often a court will have to decide if a beneficial interest exists. If you think this might affect you, contact us for advice as beneficial interest can be complex.
How Madison Legal Can Assist
Our commercial litigation team has considerable experience in advising on and conducting different types of disputes. If you have been made bankrupt or are the partner of someone who has been made bankrupt, it is important to obtain early advice in order to consider your best options. Please do not hesitate to contact us for advice, send us an e-mail. Alternatively, contact us via LinkedIn.