What happens to your home once you enter bankruptcy?
For most people, the most traumatic aspect of bankruptcy is the possibility of losing their home. Not only because of the substantial financial impact, but also because of the emotional loss that affects your whole family. However, rather than sticking your head in the sand and hoping it won’t happen, it’s best to have plans in place.
If you own the house you live in, it is likely to be your biggest and most valuable asset, so the Official Receiver or Trustee will want to sell it to pay your creditors. This is regardless of whether your home is freehold or leasehold, and whether you are the sole or joint owner. However, if your home is under joint ownership, the Official Receiver or Trustee only has the right to claim your beneficial interest in the property.
Your home is not the only thing that can be affected:
Is there a way to stop your home from being sold?
Yes. In some situations, it is possible to prevent or delay the sale of your family home. For example, if you have family or dependents living with you in your home, it is possible to put off the sale for three years to give you time to make other living arrangements for yourself and your family members. To prevent the sale of your home altogether, you could get a partner, spouse, or friend to agree to buy your share of it. This share is called the beneficial interest and relates to the amount of money you would receive if you were to sell your home after all your debts secured on it (e.g. your mortgage) have been repaid. However, you can’t sign over your beneficial interest without first speaking to the Official Receiver as this will be considered a bankruptcy offence. If you breach your bankruptcy restrictions, you could have a BRO made against you, be fined, or even face imprisonment.
Another option is for you to sell the house. It is important to note that if you do choose to go with this option, you have to sell the property at market value.
You can’t give your home away or sell it for any less than it is worth in an attempt to prevent the Official Receiver from selling it (this is seen as a serious bankruptcy offence). Once you have the permission of your Official Receiver, you can sell your house for what it is worth, but you cannot use the money during your bankruptcy to pay off your creditors. Instead, a lawyer must be assigned to hold it for you, and they will only be able to release it after your bankruptcy ends or is annulled.
After the Official Receiver or Trustee takes control of your home
Once they have taken control of your house, they have a three-year time limit in which to sell the family home. You will be able to regain your beneficial interest if the Official Receiver fails to take any action regarding your property during this time period.