Bankruptcy – IS My House at Risk?

Bankruptcy and My Property

Is my house at risk in bankruptcy? The short answer to that is yes!!

Here is a brief outline of what normally happens to a property when somebody goes bankrupt:-

When a person is made bankrupt their case will be administered by the official receiver (OR). It is the OR’s responsibility to sell any capital or assets that the bankrupt may have and distribute any proceeds to the creditors. The most common assets is usually the bankrupts home.

Normally if a property is involved the OR will will hand the case over to an insolvency practitioner (IP), especially if there is any equity in the property. As a result the IP then becomes the trustee in bankruptcy.

Bankruptcy and Equity

Equity = financial value of the property – the amount of any outstanding mortgages or charges on the property.

Appointment of Official Receiver (OR)

Once appointed the IP takes over the role of the OR. Both the OR and the IP have the same legal powers in relation to the bankrupts home and any other property the bankrupt may have an interest in.

Never assume that the trustee will have no interest in the property. Even in circumstances where there is little or no equity, it is still necessary to purchase back the bankrupt interest. This can be done for as little as £1.00 (plus legal fees) via the trustee. This should be dealt with immediately after the start of bankruptcy.

Bankruptcy and Property Restrictions

If the person going bankrupt solely owns the property then the trustee will place a restriction over the property through land Registry. This means that the bankrupt is no longer the legal owner of the property and therefore does not have the right to sell it. Only the trustee can now sell the property.

If the person going bankrupt jointly owns property, then the trustee is entitled to the bankrupts beneficial interest in the property. This is usually 50% of the equity, however, the property remains in the legal ownership of the bankrupt.

Someone who had lent money for the purchase or renovation of the property, although they appear to have no legal title over the property, may have acquired a beneficial interest in the property. If this is proven it may also be taken into account in any negotiations with the trustee.

The trustee will apply for a restriction over the jointly owned property, guaranteeing that the trustee will receive the bankrupts beneficial interest if the property is sold.


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