The effects of bankruptcy are invariably demoralising and can have wider, sometimes unexpected, results for other members of the family. In no other area can this be as distressing as the potential loss of the family home.
Between family partners, whether or not married, it is usual for the family home to be owned jointly. If one of those partners is declared bankrupt, then, even if the other is blameless in connection with their finances, the effects on that blameless partner and any children can be devastating.
The possible consequences of bankruptcy were starkly illustrated in a case which was recently heard in the High Court and the Court of Appeal. In brief, the circumstances were as follows:
Pausing there for a moment, it is worthwhile noting the law which applies when this situation arises. Under the Insolvency Act 1986, an application for the sale of a bankrupt’s home must be made within three years of the date of making the bankruptcy order. In this case, that time limit was complied with.
When the judge comes to consider whether or not to order a sale of the property, the law states that
“Unless the circumstances of the case are exceptional, the interests of the creditors outweigh all other considerations”
Returning to the circumstances:
The issue to be decided therefore was whether the circumstances relating to the ownership of the house, particularly regarding the health problems of the daughter were so ‘exceptional’ that they should override the interests of the creditors.
At the first hearing, the judge decided that the circumstances were indeed so exceptional that the sale of the house should be postponed until the daughter no longer lived at the house as her permanent residence.
HMRC obtained permission to appeal that decision and the case went to the Court of Appeal. The decision of that court was:
The importance of this case is to illustrate that where one of the partners to a marriage or partnership gets into financial difficulties and there is a risk of bankruptcy, the consequences can be serious for the innocent party, who may not even know about the problems. As soon as issues of this nature come to light, it is very important that the appropriate legal advice is taken.
For more information or some preliminary confidential advice please contact Pippa Allsop, Associate in our Family Team, on +44(0)1392 687747 or email email@example.com.