If you are declared bankrupt, we consider what will happen to a property which you own jointly with someone else.
One of the main issues surrounding the bankruptcy process is how a property that you own is dealt with by the official receiver (OR).
The general rule is that the OR is required to release any equity that you own in the property so that this money can be used to repay your creditors.
This situation still stands if you own your home in joint names with someone else. Any equity in the property is of course divided between the owners. However the OR still has a duty to realise whatever portion of the equity is yours.
Even if the other owner(s) want to keep the property, the OR has the ultimate right to force a sale against their wishes if this is the only way of releasing your equity.
Different options
The action that the official receiver will decide to take is firstly dependent on the amount of equity that there is in the property.
If the property is in negative equity, there will be absolutely no point in the OR trying to sell it. In this case, it is normally possible for you to buy back your part of the title to the property from the OR for a nominal sum (generally £1) plus the solicitor's fees.
However, the OR does not have to agree to sell you back your title immediately. If they feel it is likely that the property will rise in value in the near future, they can hold on to your title for up to 2 years and 3 months to see if the situation changes.
If after this time negative equity remains or the equity is still less than £1000 the property will simply be returned to you.
Where minimal equity exists
If at the time you are declared bankrupt, there is some equity in your property but this is minimal, the joint owner can offer to buy back this equity and your title to the property.
The amount paid must be equal to the value of the equity. The official receiver will generally not accept a lower amount.
If you and the joint owner of the property cannot agree on buying back the equity at that time, the OR will simply retain your title to property for up to a maximum of 2 years and 3 months.
After that time the property will be re-valued. Again you or the joint owner can then chose to buy out the OR's ownership of the equity.
If you cannot afford to do this and the equity has not grown significantly, the receiver will take a charge against the property for the total value of your share of the equity and then hand back your ownership to you.
If the equity has grown significantly, the OR has the right to then force a sale to release your portion of it.
As such, if you believe property prices in your area are going to rise in the near future but you do not have the money to buy back your equity immediately you need to take further advice.
Dealing with more significant equity
If you property has a significant amount of equity in it, then you must not declare yourself bankrupt unless you fully understand the implications.
In this scenario, the question is always what is significant equity? Ultimately this will differ from case to case. However as a rule of thumb, if after separating your portion of the equity from the other joint owner(s), the official receiver still believes they could realise a return for your creditors by forcing a sale, they will consider pursuing this option.
It is important to understand that in this scenario, the OR has the right to force the sale of the property even if the other owner wants to keep the home!
Of course the OR does not want to force a sale as this process could well be costly and erode the amount that is eventually made available for your creditors.
The OR would prefer if the other owner of the property or another third party was able to offer a reasonable lump sum to buy out their claim on your equity so the ownership of the home could simply be returned to you.
However if no offer is made or no agreement can be reached, they are then likely to press for the house to be sold. Of course in this scenario, the other joint owner(s) would be returned their portion of the equity released after the sale.
Joint ownership offers no protection
It is very important to understand that if you declare bankruptcy as a homeowner, the official receiver has a duty to realise any equity you own in your property.
If you own the property in joint names with someone else, even if this party wants to keep the house and does not want to sell, this will not prevent a sale from going ahead where the OR feels it is appropriate.
If there is minimal equity in the property, it is possible that the OR will not force a sale but simply put a charge on the house and then return it to you.
However where more equity is involved, the other party has to buy out the OR or face having the property sold against their wishes.
One of the main issues surrounding the bankruptcy process is how a property that you own is dealt with by the official receiver (OR).
The general rule is that the OR is required to release any equity that you own in the property so that this money can be used to repay your creditors.
This situation still stands if you own your home in joint names with someone else. Any equity in the property is of course divided between the owners. However the OR still has a duty to realise whatever portion of the equity is yours.
Even if the other owner(s) want to keep the property, the OR has the ultimate right to force a sale against their wishes if this is the only way of releasing your equity.
Different options
The action that the official receiver will decide to take is firstly dependent on the amount of equity that there is in the property.
If the property is in negative equity, there will be absolutely no point in the OR trying to sell it. In this case, it is normally possible for you to buy back your part of the title to the property from the OR for a nominal sum (generally £1) plus the solicitor's fees.
However, the OR does not have to agree to sell you back your title immediately. If they feel it is likely that the property will rise in value in the near future, they can hold on to your title for up to 2 years and 3 months to see if the situation changes.
If after this time negative equity remains or the equity is still less than £1000 the property will simply be returned to you.
Where minimal equity exists
If at the time you are declared bankrupt, there is some equity in your property but this is minimal, the joint owner can offer to buy back this equity and your title to the property.
The amount paid must be equal to the value of the equity. The official receiver will generally not accept a lower amount.
If you and the joint owner of the property cannot agree on buying back the equity at that time, the OR will simply retain your title to property for up to a maximum of 2 years and 3 months.
After that time the property will be re-valued. Again you or the joint owner can then chose to buy out the OR's ownership of the equity.
If you cannot afford to do this and the equity has not grown significantly, the receiver will take a charge against the property for the total value of your share of the equity and then hand back your ownership to you.
If the equity has grown significantly, the OR has the right to then force a sale to release your portion of it.
As such, if you believe property prices in your area are going to rise in the near future but you do not have the money to buy back your equity immediately you need to take further advice.
Dealing with more significant equity
If you property has a significant amount of equity in it, then you must not declare yourself bankrupt unless you fully understand the implications.
In this scenario, the question is always what is significant equity? Ultimately this will differ from case to case. However as a rule of thumb, if after separating your portion of the equity from the other joint owner(s), the official receiver still believes they could realise a return for your creditors by forcing a sale, they will consider pursuing this option.
It is important to understand that in this scenario, the OR has the right to force the sale of the property even if the other owner wants to keep the home!
Of course the OR does not want to force a sale as this process could well be costly and erode the amount that is eventually made available for your creditors.
The OR would prefer if the other owner of the property or another third party was able to offer a reasonable lump sum to buy out their claim on your equity so the ownership of the home could simply be returned to you.
However if no offer is made or no agreement can be reached, they are then likely to press for the house to be sold. Of course in this scenario, the other joint owner(s) would be returned their portion of the equity released after the sale.
Joint ownership offers no protection
It is very important to understand that if you declare bankruptcy as a homeowner, the official receiver has a duty to realise any equity you own in your property.
If you own the property in joint names with someone else, even if this party wants to keep the house and does not want to sell, this will not prevent a sale from going ahead where the OR feels it is appropriate.
If there is minimal equity in the property, it is possible that the OR will not force a sale but simply put a charge on the house and then return it to you.
However where more equity is involved, the other party has to buy out the OR or face having the property sold against their wishes.
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