Give Away Assets before going Bankrupt
- 03 Feb 2022
You cannot give away assets before going bankrupt in order to protect them. The transaction will be overturned.
Included in this article:
- What is a transaction at undervalue
- Can you give away your house before going bankrupt?
- What about giving away your car?
- Do you need to worry about your household belongings?
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What is a Transaction at Undervalue?
A transaction at undervalue is where you give away one of your valuable assets (such as a car or property) or sell it for less than it is worth. If you do this within 5 years of going bankrupt the transaction can be overturned by the Official Receiver (OR).
In other words the OR is within their rights to demand that the asset is handed back to them. If the person you gave it to refuses they could themselves face legal action.
The only time this rule can be avoided is if the transaction happened more than 5 years before the date you go bankrupt. In those circumstances the transaction stands and the goods cannot be recalled by the OR.
If you have carried out a transaction at undervalue whether wittingly or unwittingly you are at risk of getting a BRU.
Can you give away your House before going Bankrupt?
If you are a home owner you will probably be aware that going bankrupt could put your property at risk. In order to get around this you may consider transferring your share of the property to someone else.
However unless you carried out the transaction more than 5 years ago it is a transaction at undervalue. The OR is legally allowed to ignor it and proceed to realise your share of any equity.
You can sell your share of a property before you go bankrupt if you wish. However you need to receive fair market value. You will have to hand over the cash to the OR and give a detailed account how any of it has been spent.
Keeping quiet about a property transfer is not an option. The OR will do a Land Registry search and discover you have been a home owner in the last 5 years.
Can you give away your Car before Bankruptcy?
If you own a car that is worth more than £1000 the Official Receiver will normally ask you to sell it and buy a cheeper one.
To avoid this you might think that you could simply give away the car to your partner or another third party. You could then claim that you do not own a vehicle but still continue to use it on a day to day basis.
Unfortunately this is also a transaction at undervalue. If the OR discovers the transaction they can force the return of the vehicle from whomever is the new owner and sell it.
The OR will normally investigate any vehicles you may have owned in the last 5 years by reviewing your DVLA record.
Should I give away any of my household belongings before going Bankrupt?
In general the OR has no interest in your household possessions. You do not need to declare any of your belongings to them unless individually they are worth more than £500 second hand.
Given this there is no need to even consider giving these type of items away before going bankrupt. However if you own anything worth more than £500 these must be disclosed.
You may think about trying to protect these belongings by giving them away. After all how would the OR ever find out? In reality they may not. However if they do they will act to recover the items.
Want further advice about your assets and bankruptcy? Give us a call (0800 044 3194) or complete the form below.
Hi My Wife is about to go bankrupt. I bought my house 2.5 yrs ago as we had split up. We now live together, and the house is in, and has alwaysbeen in my name. We rented for about 5 yrs previous to this, so my wife insnt on the land registry since 2008. CA my house be repossessed as part of the bankruptcy
Hi Dave
If you bought your property (ie paid the deposit from your own funds) while you were seperated from your wife and have always paid the mortgage from your income then it looks like your wife has no beneficial interest in it. This is the case even if you have now got back together and she is living with you in the property.
As such if she now goes bankrupt your house would not be at risk. Your wife can legitimately state in her application that she is not a home owner. She is simply living with you in your property.
Hi
I have a joint mortgage with my brother. I had to transfer the mortgage and deeds to my brothers name due to me losing my job I could not keep up with my payments.
I also am thinking of filing for bankruptcy as I cannot keep up with payments. Will the receiver still have a claim on the house?
Hi June
If you go bankrupt you will need to declare whether or not you have sold or transferred a property out of your name in the last 5 years. Given that your brother did not pay you for your share of the property the transaction will be considered a transfer.
Given you go bankrupt within 5 years of this transfer then as far as Official Receiver (OR) is concerned it can be ignored. As such they can still say that you own 50% of the property. As such if there is any equity they will claim 50% of this as yours. As such this amount will have to be released and paid to them.
This situation gets increasingly complex if the transfer happened some time ago. This is because if your brother has been paying the mortgage since then he can argue that any increase in equity since the date of the transfer is his. As such to accurately calculate your share (the amount that the OR can make a claim to) you will need to get a valuation of the property at the time the transfer took place. If this is more than a year ago you may need to pay a valuer to give a professional view.
Hi James
Thanks for your response. As the house is not in my name and it was a joint mortgage. Will my brother need to sell the house to release the equity if any or simply ask me to pay the difference?
Thanks
Hi June
The last thing the OR wants is for your brother to have to sell the house. As such if there is equity the best way to release your share would be for him to pay a cash sum to the OR of the equivalent value. The money could come from his own funds or he could borrow it (perhaps even remortgage to release the necessary amount). This process is known as buying back your beneficial interest.
You are not allowed to pay this sum yourself while you are bankrupt. If you had access to such funds they would have to be handed to the OR as part of the assets your bankruptcy. The funds can only come from you if can come up with the money after you are discharged.
Hello,
We have about £23000 equity in our property. My partner is looking to file for bankruptcy, can we remortgage to release the equity and use it to pay off some of my debt?
Alternatively could we remortgage and split the equity 50/50 to pay off some of her debt and some of mine. Would this be allowed to keep the house safe from being used to recooperate some debt providing I could by any future equity from her if the or decides to sell the property?
Many thanks in anticipation
Hi Robert
This is not a straight forward situation. You could release equity before your partner goes bankrupt and you could use your half of any money released to do with what you wish. However your partner’s half must NOT be used to pay off debt. If this were to happen at any time within 2 years of her going bankrupt it would be a preferential payment. The Official Receiver would then reclaim the money paid and she would be at risk of getting a Bankruptcy Restriction Undertaking (BRU).
In addition this would not necessarily protect the property. Her beneficial interest in the property would still pass to the Official Receiver and her share of any remaining equity would still have to be released. This is a fairly complicated situation to get your head round. If you need further information or advice about this please do give me a call (0800 044 3194) and I would be happy to chat through the implications and options with you.