Property in a Pickle: Buying and Selling when there’s Insolvency Involved

Insolvency isn’t the sort of topic that’s usually brought up at dinner parties. Rather, it’s the sort of thing that’s usually kept hush-hush and swept under the carpet. Problem is, if no one ever talks about it, it becomes very difficult to know what to do should you get embroiled in it yourself. 

It’s easy to think that insolvency would never affect us, but let’s be honest: none of us have a crystal ball. The uncomfortable truth is that any one of us could be just a string of really bad luck away from finding ourselves in a very different situation. Though we can – and should! – make sure we have savings, insurance and other contingency plans in place, none of us are immune.  

Every homeowner with a mortgage will have been made aware by the small print that their home is at risk if they’re not able to keep up with monthly repayments. Unfortunately, the mortgage companies do really mean this, and if you were to find yourself in a position of not being able to keep up with repayments, this could well end with your home being repossessed.  

What should you do if you’re getting in financial difficulties? 

Human beings are often partial to ostrich behaviour and may bury their heads in the sand at the first sign of financial troubles. Though we can certainly understand the temptation to stick your fingers in your ears and shout LALALA, CAN’T HEAR YOU, in truth this typically only leads to more problems. 

Our advice would be to try and assess the situation ASAP rather than ignore it. Best case scenario, you could discover things aren’t as bad as you feared and that you can get them under control again with a few decisive measures. The less positive outcome is that you might need to make some bigger, scarier changes … but surely even this has got to be better than ignoring the situation until it descends into complete financial ruin. 

If you’ve found yourself looking down the barrel of this sort of thing, there is support available. You could turn to an independent financial advisor or accountant, or you might find it helpful to speak to a charitable organisation. National Debtline, Step Change and Turn2Us all offer practical support to people in financial difficulties.  

If you don’t think you can manage to keep up with your mortgage payments – or if you need to access the equity in your home in order to pay off other debts – it might be prudent to explore the idea of selling your home. In these situations, we’d advise not putting off the decision for any longer than you need to. After all, if you’ve ever sold or bought a house, you’ll know these things can take far more time than we might like them to. 

What might happen to your property if you’re declared bankrupt? 

Bankruptcy might sound like something that mainly happens in period dramas and monopoly games, but for many people it’s the only way out of a bad financial hole. It’s generally a last resort, as it has far reaching consequences beyond not passing go and not collecting £200.  

Once you’ve applied for bankruptcy (which, ironically, costs £680) and have been issued with a bankruptcy order, you will be subject to certain court-ordered restrictions. A key part of this will be handing your assets over to the trustee that’s been appointed to manage your bankruptcy. 

This trustee will manage the sale of any assets required in order to pay off your debts. Depending on your situation, this could include any property you own. A restriction will be added to your property’s entry in the Land Registry to notify any potential buyers about the situation.  

If you’re the sole owner of the property, your trustee will automatically have the power to sell it on your behalf if necessary. You will not usually have much say in this, unless: 

  • The value of the equity in your property is less than £1,000. 
  • Someone else (such as a partner or family member) is willing to buy you out. 

If the wind is blowing in the right direction, your trustee may allow you to delay the sale for up to a year to find alternative accommodation for anyone else living in the property (such as your partner or children).  

If you’re the joint owner of a property, your co-owner will have a modicum of choice in that they can decide whether or not to co-operate with a sale. Unfortunately, if they decide they don’t want to co-operate, the trustee can respond by seeking a court-order to force them to sell. The court will take the needs of your co-owner and any other residents into account, but would usually only rule against a sale if there was an ‘exceptional circumstance’ at play. A solvent co-owner not wanting their house to be sold or to be made homeless would be unlikely to be considered exceptional without any other mitigating factors.   

Whether your home is singularly or jointly owned, if a trustee has not made a move to sell it after three years of bankruptcy, the right to decide will usually pass back to you.  

Buying a property from someone in financial difficulty 

We know, we know, there are already an awful lot of things to consider when buying property, but you really do need to be wise to any signs the seller might be in dire financial straits.  

Keep this in mind if a property seems to be being sold at a very good price. It could be that the property is being sold under its value in the hope of a quick sale. Alas, this might not be the fabulous deal you think it is, especially if a winding up order or pending bankruptcy petition is presented to the seller before completion. If that pending order was to develop into a full winding up or bankruptcy order within five years, this could potentially void the sale. There’s a chance you’d then need to contend with lengthy and expensive court proceedings to prove you paid market value for the property in good faith.  

This is why solicitors carry out solvency checks against sellers. If these searches produced any petitions, you would then have the option of backing out of the sale or of seeking further confirmation from the court who issued the petition. Though any good conveyancer will carry out these searches as a matter of routine, if you get whiff of any money troubles from your sellers, this is well worth a mention to your conveyancer.  

Buying a property from a trustee in bankruptcy  

If you’re buying a property from an owner or joint-owner that has been declared bankrupt, your conveyancer will need to be extra cautious.  

One of the main issues here will be making sure you’re dealing with the correct individual. In many cases, it will be the trustee that handles the transaction rather than the insolvent owner themselves. You and your conveyancer will need to proceed carefully to ensure you’re dealing with the correct party and not the illicit one.   

You’ll also need to be extra conscientious in ensuring you have evidence that the price agreed is fair in regards market value. Anything that could be said to be an undervalue could be disputed later on.  

Finally, if the seller’s affairs are being managed by a trustee, it’s important to understand that this will have a bearing on things. Most notably: the trustee will not know anything about the property so won’t be able to answer enquiries about it (no, not even where the stop cock is). It will be made clear that the property is being sold as seen, and you will be responsible for carrying out any further investigations yourself.  

If you’re seeking advice on conveyancing and insolvency – or any other conveyancing-adjacent topics that are generally not considered appropriate for light-hearted social occasions – please do get in touch.  

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