Bankruptcy – trying to stop the family home being sold!
In the depressing and highly stressful situation of being made bankrupt it may seem that all is lost and that there is no opportunity to negotiate or contest anything.
The stress of bankruptcy is also compounded where the bankrupt has a family and a home that he or she owns.
If there is any equity in property owned solely or jointly by a bankrupt, the property is definitely at risk. However, all may not be lost. Getting good advice and understanding the often complex financial and other considerations for all, including the Trustee in Bankruptcy, is often key. As specialist insolvency solicitors, we are experienced in these situations and would be happy to assist.
Property jointly or solely owned ?
If the property is jointly owned at the Land Registry, the starting point is whether the property is owned as joint tenants or tenants in common. This can be ascertained by a Land Registry check to see whether there is a form of wording on the Land Registry title. If there is no restriction and the property is owned beneficially as joint tenants, there is a presumption that the equity is owned 50:50. With a tenancy in common, the same applies unless there is another arrangement as to proportions of equity (note also that changing a joint tenancy to a tenancy in common and altering equitable stakes in anticipation of bankruptcy will inevitably be challenged).
If the presumption is 50:50 equity, it is still possible to argue against this but the chances of succeeding are generally not great.
If the property is solely owned by the bankrupt but occupied by his or her spouse or partner and possibly children, it is possible to argue that the non-owning party has an interest in the property, either by contributing to the initial purchase amount, paying towards the mortgage or outgoings, improving the property or contributing otherwise.
The above creates an element of hope, but much will depend on the amount of equity in the property after any mortgages or other financial charges are redeemed. If the remaining equity is fairly low, perhaps £30,000.00 or less, and the non-owner has prospects of raising, say £10,00.00-£20,000.00 to buy out the Trustees interest in the property, there may be prospects for a deal. This is because at that level, it is probably not in the interests of the creditors of the bankrupt for the Trustee to get involved in a costly and uncertain dispute.
However if there is substantial equity in the property, unless that non-owner can raise a significant sum, the dynamic will be different, resulting in the prospects of being able to but out the bankrupt’s interest diminishing significantly.
Buying time where family lives in property with bankrupt
Under current bankruptcy law, where a property owned by a bankrupt is occupied by a spouse and/or children, it will not be possible for the Trustee in Bankruptcy to get an order for sale in the first year after the bankruptcy order. This is another dynamic which needs to be taken into account – in some situations, it can make a difference, making the possibility of buying out the bankrupt’s equity possibly more affordable in a falling property market but potentially having the opposite effect in a rising market, where the Trustee will be content to wait and the value of the bankrupt’s interest may become less affordable to buy.
In fact the Trustee can wait for up to 3 years to decide whether to apply for an Order for Sale which can creates further stress for the bankrupt and his or her family. This is notwithstanding that technically the bankruptcy status will normally end after only 1 year, the administration of certain financial aspects may continue afterwards.