The official line is that if you are bankrupt and there is equity in your home, then a Trustee in bankruptcy may have to sell it to pay your bankruptcy debts, whether it is freehold or leasehold, and even where it is jointly owned with a non-bankrupt individual.
However, in practice, if you were made bankrupt on a Monday then you would not get a knock on your door to evict you from your house on Tuesday….nor the following week or even month. Although a fair value for your share of the equity would need to be paid into your bankruptcy estate one way or another, in most cases, trustees in bankruptcy prefer not to take possession proceedings. After all, from the trustee’s view, court proceedings are expensive and can be protracted, especially if resisted. And why should trustees go to that bother if they can sell your equity at a reasonable value to the joint owner of the property or a relative, which is surely a happier situation all round?
Furthermore, if there is a non-bankrupt spouse or child in the house, then insolvency law generally protects their interests above that of creditors for the first year of bankruptcy. Therefore a trustee in bankruptcy would not (or could not) apply for a possession order during that time but would instead try to negotiate with the joint owner or any other interested party to buy out the trustee’s share in the equity, either through a remortgage or third party funds, or otherwise maybe go for a voluntary sale.
Therefore, even though equity must be dealt with, possession proceedings in most cases are a trustee’s last resort and certainly not an immediate measure.
That said, although a family home cannot be touched by the Trustee for a year, that time should be used wisely to negotiate with the Trustee, if possible, rather than ignoring the situation and the Trustee’s correspondence, as a year soon flies by. Furthermore, if a bankrupt is on his or her own in a property with plenty of equity then there is no reason why a Trustee should wait, and if there is no co-operation from the bankrupt, take possession proceedings.
So the answer to the question above is ‘no’ it is not automatic, but the issue should not be ignored.
If you have any questions regarding your debts, bankruptcy, or personal insolvency please get in touch with our team of experts on 01392 667000.