What will happen to the bankrupt’s home?

In personal insolvency, the bankrupt is usually most concerned about what will happen to their home. The largest asset in a bankrupt’s estate is usually a beneficial interest in the family home. Insolvency law in this area is complex. The treatment of the bankrupt’s home and, specifically, whether the appointed trustee in bankruptcy (the ‘trustee’) has the right to force its sale is determined by the Insolvency Act 1986 (as amended), the Insolvency (England and Wales) Rules 2016 and the Enterprise Act 2002 Enterprise Act 2002 (as amended).

Once a bankruptcy order has been made by the court, assets that form part of the bankrupt’s estate pass to the appointed trustee and, subject to certain exceptions, the trustee may act in relation to them as he/she thinks necessary for the benefit of the creditors. The trustee may need to sell the bankrupt’s home if this is the only way to raise money to repay creditors. This applies whether the home is freehold or leasehold or whether it is solely or jointly owned. However, it may be possible for the sale to be postponed until the end of the first year (beginning from the date of the bankruptcy order) if a spouse or children live with the bankrupt. After that time, the court will only refuse an order for sale in exceptional circumstances.

Under section 283(A) of the Insolvency Act 1986, the trustee has 3 years in which to deal with the bankrupt’s home. There are several options available to the trustee, not just sale, for example he could apply for a charging order on the property. If the trustee does nothing (which is unlikely) their interest in the property will revert to the bankrupt. The 3-year period in which the trustee must act begins to run from the date of the bankruptcy order.

This briefing paper provides general information on what might happen to the bankrupt’s home under current insolvency legislation. It applies only to England and Wales. Scotland has its own separate bankrutcy law known as sequestration. Anyone made bankrupt (or considering bankruptcy) should seek proper legal advice based on a full appraisal of the facts of their case.