Bankruptcy and the matrimonial home – what are risks you should be aware of?

What is bankruptcy?

In its very basic form, where an individual is made bankrupt, their assets will be collected by the Official Receiver or Trustee in Bankruptcy (“TiB”) for the benefit of unsecured creditors.

Is your home at risk if your partner is bankrupt?

If your partner or you are declared bankruptcy, you could risk losing your home.

Bankruptcy procedures and the sale of property is determined by provisions of the Insolvency Act 1986 (as amended) (the IA 1986), the Insolvency (England and Wales) Rules 2016 (as amended), and the Enterprise Act 2002 (as amended) (EA 2002).

Where a bankruptcy order was made after 1 April 2004, the TiB must take steps to deal with their interest in the bankrupt’s family home within 3 years of the bankruptcy order by:

(a) realising the interest (i.e. selling it to somebody else, often the joint owner or family member); or

(b) applying for an order for possession and sale; or

(c) applying for a charging order over the property for the value of the trustee’s interest; or

(d) entering into an agreement with the bankrupt regarding the interest.

Ideally, the TiB would sell their interest to either a joint owner or family member as set out above, to raise the relevant funds to try and make a distribution to creditors, however this is not always possible.

Whether or not you lose your home will mainly depend on who owns the property. If it is your partner who is being made bankrupt and you are the sole owner, or if you hold the legal title to the property and are able to prove that your partner is not entitled to any proceeds if the property was sold, the TiB will not usually be able to have a claim on your home.

If you jointly own your home or the property is solely owned by the bankrupt, you may face losing it. However, certain steps could be taken to either delay or in exceptional circumstances, stop the sale altogether.  Examples of exceptional circumstances may include:

• you having a disabled child and the house has been adapted for their needs; and
• you are over 70.

Summary

This is a complex area of law and if you or your partner are facing bankruptcy and you are worried about the implications on your family home, you should speak with an experienced insolvency practitioner as soon as possible.  At Lincoln & Rowe, we can advise clients on all aspects of personal and corporate insolvency litigation in the UK and international jurisdictions. Our insolvency team act for insolvency practitioners, directors, bankrupt individuals, creditors and other third parties on a range of matters.

We have wide-ranging experience in litigation and were named as the ‘Best Firm for Commercial Disputes in London’ in the 2019 SME Legal Awards as well as ‘Boutique Litigation Law Firm of the Year’ in the 2019 Global Awards by ACQ5.

If you would like to talk to one of our expert legal team about the best way to deal with a bankruptcy claim or default judgment against you, contact the author, Sophie Jerry, or call the team today on 020 3968 6030 and we’ll be happy to help.

The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact an adviser or solicitor.