What can happen to my home after a bankruptcy petition?
After a bankruptcy order has been made, the trustee in bankruptcy has three years to deal with your matrimonial home as an asset in the bankruptcy. If it is not dealt with in this time, your stake in the property will revert back to you automatically. It should be noted that if you conceal the property, and the trustee discovers the property at a later date, case law will allow them three years to deal with the property from the date of discovery. Obviously, this could then mean that equity is even larger. In turn, this would require a larger sum to be raised to buy back the property.
Upon appointment, the trustee will register a restriction against your property. This will prohibit any action being taken with regard to the property without their consent. If your property is solely owned, restrictions will automatically be registered by the court up presentation of the bankruptcy petition. If the property is a family home where your partner and/or children also reside, the trustee will not be able to take any action in respect of your property for a period of one year from the bankruptcy order. However, after this time period the needs of the creditors is deemed to outweigh the families right to reside.
It is possible to avoid losing your home in bankruptcy, and the trustee’s options to deal with any equity in the property are listed below.
What actions can the trustee take in relation to my property?
The trustee generally has several options to deal with the equity in your home in bankruptcy. In order to start the process, the trustee will request that an agent carries out a valuation of your property. This will be an RICS chartered surveyor rather than an estate agent to lower the variation in values. If you refuse to cooperate with the inspection, a drive-by valuation will be carried out instead. This will not take into account any wear and tear inside the property. Therefore, it is in your interest to cooperate with the internal inspection.
On receipt of the valuation the trustee in bankruptcy will calculate your share of the equity in the property. The following options then become available to realise the equity in your property:
- A family member could buy out your interest in the property.
- A charge may be granted in favour of the bankruptcy estate for the future sale of the property.
- A voluntary sale of the property can be undertaken.
- Possession of the property can be sought through the courts.
These items are listed from the lowest impact and least expensive option to the most expensive and damaging option. You should bear in mind that, whilst these options appear harsh, the trustee in bankruptcy is on officer of the court carrying out their statutory duty to creditors of the company. They will act reasonably at all times and engagement with the trustee is the most appropriate way to deal with this moving forward.
Buy out interest in property
The cheapest option available is for your partner, or another friend or family member, to buy out your interest in your property. As a result of no requirement to incur legal costs or costs of sale, the trustee in bankruptcy may be able to take this into account when considering your offer. However, any discount will not be significant unless the amount of equity in your property considerably exceeds the total value of your creditors. In this instance, it may be more appropriate to consider annulment of your bankruptcy.
Granting a charge against your property
Where you are paying an income payments agreement and the equity in your property is on the lower end of the scale, the trustee may consider accepting funds from you directly in lieu of equity from the property. Due to income payments agreements covering any surplus income you have, these funds would need to be paid after the income payments agreement has been completed.
In order to proceed with this, you will need to agree and value a legal charge with the trustee in bankruptcy. This is due to income payments agreements lasting three years. In the normal course of the bankruptcy, the trustee’s interest would expire before the end of the income payments agreement. Before giving a charge, you should note that the trustee will still be empowered to apply for possession and sale of your property if you fail to make payments.
If the equity in your property is £1,000 – £5,000 the trustee may apply a section 313 charge against your property, under the Insolvency Act 1986. This simply means that if you sell or transfer your property, this charge will need to be satisfied at this point. A section 313 charge does not give any powers to force the sale of your property, but simply leaves the trustee able to set their interest against the property for future realisation.
Voluntary sale of your property
In the event there is equity in your property, and there is no prospect of raising funds to buy out the equity, it may be worth considering submitting to a voluntary sale. The benefits of this are:
- No risk of legal costs of a possession and sale application.
- The property can be marketed at a higher value, rather than for a quick sale following possession.
- The marketing term can be longer allowing you more time to make alternative accommodation arrangements.
- Any joint owner should receive a larger quantity of funds.
- No stress of possession proceedings and eviction from the property.
- Funds may become available during the marketing period to allow you to buy out the equity in the property.
The trustee will work with you on any voluntary sale of the property and seek to keep things amicable. They will consult with you, or any joint owner on matters such as sale price, agents and completion dates. While this does mean losing your home, it allows some control of the process as well as more funds for the joint owner towards a new home.
Possession and sale application
If all else fails or you do not cooperate with the trustee, the last resort of the trustee is an application for the possession and sale of your property. The trustee will always seek to engage with you and try every other course of action before resorting to this drastic course of action. Not only does this leave you in a position where you may be forcibly evicted from the property, but you or any joint owner will likely be liable to pay a costs order toward the application costs.
The trustee will make the application to court and a hearing will be set to consider whether the order for possession and sale will be granted. The order will not be made where a non-bankrupt partner or children reside in the property until one year after the date of the bankruptcy order. After this date, the order for possession is likely to be granted. Even at this stage, the trustee will give you an opportunity to leave the property voluntarily, handing over the keys. Failing this they will apply for a warrant for possession, which will mean enforcement agents will evict you for the property and change the locks.
Following this, the property will be placed on the open market and to reduce the burden on the trustee, may be marketed at a lower value to achieve a sale within 90 days. Upon the sale any funds due to the joint owner will be paid to them. However, this will be net of any costs of sale and costs orders granted by the court.
If you are subject to a bankruptcy petition or a bankruptcy order, and have significant equity in your property, the main thing to do is act quickly. In either circumstance you may be able to take action such as proposing an individual voluntary arrangement to counteract the petition or annul the bankruptcy order. In either circumstance, the sooner you act, the more options you will have. Our business rescue experts can take you through the next steps in order to protect your home.