Will I lose my home if I go bankrupt?

This briefing note explores what happens to a person’s home if they are declared bankrupt and what happens if the family home is jointly owned by a partner who is not bankrupt.

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 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:

1. Someone else has a legitimate interest in the property, such as a partner who jointly owns the property;
2. A third party will purchase your share of the property for market value;
3. 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:

1. Is over 70 years old;
2. Is disabled and the property has been specially adapted;
3. 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:

1. Applying to Court for a possession order and / or an Order for Sale or a charging order;
2. Sold the beneficial interest to a third party, such as partner or family member;
3. Come to an arrangement with the bankrupt person to pay off the value of the beneficial interest in instalments.

How Gherson can assist

Gherson’s litigation team has considerable experience in advising on these matters. 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.

If so then please do not hesitate to contact us for advice, send us an e-mail, or alternatively, follow us on Twitter, Facebook, or LinkedIn to stay-up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2022

View all news & Insights