Joint Property and Bankruptcy
- 29 Nov 2021
If you own a joint property there are significant implications if you go bankrupt. Particularly if there is equity in your home.
Jump to article content:
- How is a joint property affected if you go Bankrupt?
- How to buy back your interest in the property
- What if there is no equity?
- Can you be forced to sell a joint property?
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How is a Joint Property affected if you go Bankrupt?
A joint property is not protected if you go bankrupt. The fact that you own part of it means your share is one of your assets. The Official Receiver (OR) will therefore be interested in it.
What is known as your beneficial interest (the equivalent to your share of any equity) passes automatically to the OR once they are appointed. Where there is significant equity they will have to take action to realise this.
If the equity cannot be released in any other way the OR may have no other option than to force the sale of the property.
The other owner’s share of any equity is not your asset. As such this cannot be touched by the OR. However the property could still be force sold to access your interest.
How to Buy Back your Interest in a Joint Property
You can offer to buy back your interest from the OR at any time. To do this you first need to calculate the value of your share of the equity.
You should get an up to date valuation of the property. The total equity is the current value less the outstanding mortgage and any other secured debts. Your share is equivalent to the percentage of the property you own.
For example if you own 50% of the property then 50% of the equity is yours. In other words if the total equity is £30,000 your share is £15,000. You will need to offer around this amount to the OR to buy back your interest.
Where the value of your equity is greater than £10,000 the OR will normally appoint a Trustee. You will need to negotiate buying back your interest with them.
What if there is no Equity when you go Bankrupt?
If there is no equity in your joint property the value of your beneficial interest is effectively zero. However it still passes to the OR on the day you go bankrupt.
Given the zero value they will not take any further action in the short term. However they retain the right to do so for up to 3 years.
Sometime towards the end of the 3rd year from the start date of your bankruptcy the OR will get an up to date valuation. If there is still no equity your interest is simply returned to you. However if there is equity you will have to pay the equivalent of your share to buy it back.
If there is no equity in your property you can buy back your beneficial interest at any time by paying £1000. This protects you against future house price rises.
Can you be forced to sell a Joint Property if you go Bankrupt?
The OR must release your share of any equity in your joint property. Legally they have up to 3 years to do this. However if a Trustee is appointed they will normally want the issue resolved after 12 months.
If after this time you have not made a reasonable offer to buy your equity they can take action to force the sale of your property. The fact that the other joint owner may not want to sell is not taken into consideration.
Where necessary the OR or Trustee will apply to the Court for a sale Order. There will be a Hearing where the joint owner can try to argue against it. However the Judge will normally take the side of the OR or Trustee.
If there is equity in your property but the amount is minimal the OR is likely to wait and apply for a charge for this amount rather than forcing a sale.
My mum is joint owner of her house with me. I have made all the mortgage payments. She was made bankrupt in January 2010. I am selling the house. Will I be liable for any payments to her debtors? There was no equity in the past although there is a small amount now.
Hi Kathy
Were you and your Mum both living in the property when she went bankrupt in 2010? If so, the official receiver is likely to have treated it as your Mum’s residential home.
In these circumstances, the OR has 3 years to realise any equity from the property. If after that time they have taken no action or there is no equity, then the financial interest is automatically passed back to your Mum. If there was little or no equity in the property between 2010 and 2013 it is likely that this is what happened.
Has the solicitor you are using to sell the property done a land registry search? They should be able to see whether the OR still has a charge (restriction) against the property from this search.
If the search doesn’t show a restriction, then it is safe to assume that the OR no longer has an interest and there should be no problem.
I suggest you speak to the solicitor to double check this.
I have a 40% share in a house owned by my ex-husband with a long-term tenant renting the property and paying rent to my ex since 1996. I have had a tax demand from HMRC of £50k. If I claim bankruptcy, can the house have a forced sale?
Hi Shirley
Given the property is in joint names with your ex, if you go bankrupt, the official receiver will assume you have a financial interest in it.
If you and your ex believe this is no longer the case, you would need to be able to produce some documentary evidence. This would have to be something like a copy of a divorce settlement which shows your share of the property was given to him. Alternatively a legal document drawn up by you both in 1996 confirming that you gave your share to him and the reasons for this.
In the absence of such documents, I think you (and so the official receiver) have a strong claim on the property. As such it would definitely be at risk of forced sale if you go bankrupt. If you want to avoid this, then you will probable have to avoid the bankruptcy option.