What happens if a joint owner becomes bankrupt?

20/02/2017
Joint ownership of property can be disastrous if any of the joint owners are made bankrupt. Without a formal written agreement in place, the Trustees in Bankruptcy, appointed to manage the bankrupt person's affairs, will assume the property is shared 50:50 (or equally between all parties), when the reality might be drastically different.

Protecting your rightful share might involve a lengthy - and expensive - legal argument. However, you can get a joint ownership agreement when you buy a property with someone else which ensures that if any joint owner becomes bankrupt, the Trustees in Bankruptcy can only access that bankrupt person's share.

This article examines these matters, explains how a joint ownership agreement works, how to get one drawn up for yourself and gives advice on how to buy up a bankrupt joint owner's share of a property.

What if one of the joint owners becomes bankrupt?

In cases where you have a joint owner bankrupt, the Trustees in Bankruptcy will seek that person's share of the house to contribute to paying off their debts. If the property was purchased tenants in common the Trustees in Bankruptcy will assume the share of the property is equal between the joint owners unless they have a legal agreement stating otherwise. This can be concerning if you invested more money into the property and don't having anything stating this.

If you are a joint tenant and the other joint tenant/s become/s bankrupt, a receiver can claim the entire debt owed from the property because you are all equally liable in this situation.

Most purchases between friends, family or couples are held as tenants in common, whereas married couples normally buy as joint tenant (a joint tenant always owns the property 50:50).

Protect yourself from a joint owner becoming bankrupt with a Deed of Trust: Legally Binding- Drafted by Solicitors - Book Online: or call 0333 344 3234


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Will you lose your home if you have a joint owner bankrupt?

The official receiver or the trustee (if an insolvency practitioner has been appointed in place of the official receiver) may have to sell your home to help pay a bankrupt owner's debt.

What happens to the beneficial interest and legal title when you are made bankrupt?

In bankruptcy, your beneficial interest always transfers to the official receiver or trustee and usually, if you are the sole owner, the legal title also. If the home is jointly owned, the legal title remains with you and the co-owner; but the official receiver or trustee may still take action in relation to the property. such as applying for an order for possession or sale.
The official receiver or trustee has to realise (or sell) the beneficial interest to raise money to pay a bankrupt owner’s creditors. One way they may do this is to sell the beneficial interest to your husband, wife, partner, a relative or a friend.

Can-you-keep-your-house-if-a-joint-owner-becomes-bankrupt

Can you sell the property without the Trustee knowing?

No. After bankruptcy, the Trustee registers a Form J restriction at the Land Registry against the title of the jointly owned property. It is a record of the Trustee's beneficial interest in the property and it means the Land Registry will notify the Trustee of any dealings in connection with the joint owners’ property. A Form J restriction is different from a charge, which relates to a claim for a specific amount of money.

The legal interest in the property does not transfer to the trustee, so you can still sell the property, but the trustee must be paid the value of the bankrupt’s beneficial interest from the sale proceeds. 

The Form J restriction will only be removed at the request of the Trustee once they have been paid the bankrupt joint owner’s beneficial interest in the property.

What should be done if a joint owner wants to buy the beneficial interest?

The joint owners can buy the share of a the bankrupt owner and can do this by contacting the Trustee or the official receiver, whoever is applicable.
You can access a property conveyancing scheme run by The Insolvency Service if the bankrupt owner's beneficial interest has a value of more than £1000.

Under this scheme, the beneficial interest can be transferred back to the bankrupt owner, their wife, friend, family member or the joint owners; however they will need to pay for the following:

  • a conveyancing solicitor to act for them;
  • £211 (as at Oct 2014) to cover the official receiver's legal costs, to be paid in advance, which includes an allowance for expenses that the transaction may incur. If the allowance is not fully used, they will receive a refund;
  • the cost of an independent valuation unless they already have a recent one i.e. normally carried out within the last 3 months; and
  • the agreed purchase price for the beneficial interest based on the valuation.

They will also have to give up-to-date details, in writing, of the amounts needed to pay off the mortgage and any other charges on the property.

If the joint owners cannot afford the costs of the scheme, they may still be able to take part in it at a later date, when they can pay for it. The Joint Owners should contact the official receiver about this.

If, later, they approach the official receiver to buy the beneficial interest, and the property has increased in value, the purchase price is likely to have increased.
If the home is mortgaged, the lender may have to agree to the sale - the conveyancing solicitor dealing with the transaction will be able to advise on this.

Do joint owners have options if someone becomes bankrupt?

You can sell and share the sale proceeds as per the terms set down in their joint ownership agreement or they can buy the share of the bankrupt owner and pay the Trustee. If they do nothing, they may find themselves being forced to sell at a later stage so that the Trustee can get the bankrupt owner's share.

The best advice is to speak to the Trustee and work with them. Keep them updated with as much information as possible and try to see if the home can be kept by refinancing to buy out the bankrupt joint owner.

Is buying with someone else a good idea?

Yes it can be especially if it is the only way you can afford to buy a property. By joining forces with a partner, friend, flat mate or family member you can pool your resources to make your financial position stronger; either a greater combined salary for the mortgage multiples or a larger sized deposit. Deposits can be equal but do not have to be - read about Joint Ownership With Unequal Shares

One thing that is clear is that when owning a property jointly with someone else you need a robust legal agreement between you to protect your share of the property should they become bankrupt. Our Silver Deed of Trust is a legal document to protect people when buying together as it clearly sets out the ownership between each of the parties and states what happens if one becomes bankrupt.

We can help protect your share in a joint property with our Silver Deed of Trust - Call 0333 344 3234


*Fixed Fee – No Sale No Fee – On all Major Lender Panels


Related News Articles

 
Basic Deed of Trust
14/07/2018
Silver Shared Ownership Protection
15/12/2017
What is Shared Ownership Protection?
20/12/2017
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