Debtor: what happens to my home?

• Will I lose my home?
• What if my house is rented?
• What if house is owned by spouse or partner?
• What if I own the house?
• What if the house is jointly owned?
• What if the house is unsold after debtor discharge?
• How will the trustee stop me selling the house?
• Is it in my interest to prevent the sale of the house?
• What price will trustee accept?
• What if I have an endowment policy?
• What is the bottom line?
• Where can I get further information?

Will I lose my home?

This is often the main worry for people who have been sequestrated or who are thinking about self-sequestration.

The answer is not always straightforward. We will go through the most common questions and explain the possibilities.

Much depends upon your interest in the house.

By this we mean:

1. if it is rented;
2. if you own it yourself or jointly with someone else; if you live alone; or
3. if there are others living in the house.

We'll go through each of these situations.

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What if my house is rented?

If you rent your home, the trustee normally has no interest in the property. The only time it might be an issue is if they think your standard of accommodation is too high and you are paying too much rent. In this situation, your trustee can apply to the Sheriff for an order for a contribution from your income and at the same time ask the Sheriff to set a limit on how much rent you pay for your home. This limit will be less than you are paying.

Once you have been sequestrated, your landlord should not take any action for rent arrears you have up to the date you were sequestrated. But, they can take action, and even seek your eviction, if you failed to pay the rent due after your sequestration..

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What if my spouse or partner owns the house?

The trustee normally has no interest in the property if you do not own it. But, if you used to own all or part of the house and sold or gave it your spouse or partner, or to anyone else, for less than the full market value, they can ask the court to set aside that transfer (in legal language, a gratuitous alienation) and to reclaim your interest in the property.

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What if I own the house?

If you own the house by yourself, your interest in the property will automatically transfer to the trustee and it will be their duty and intention to sell it. Before they can sell the property however, there are a number of hurdles to overcome.

Is there a mortgage? If there is and the bank or building society has already started repossession proceedings, the trustee is powerless to stop this and will have no interest in the property.

Secondly, is there any equity in the property? That means, is the house worth more (as assessed by a professional valuer) than what you still owe on your mortgage. And if so, is the difference big enough to make it worth putting the house on the market?

If the answer is 'no', your trustee may simply wait until such time as there is enough equity. In the meantime, they will be quite happy to allow you to remain in the house but you should be aware that if you fail to keep up the mortgage payments, the mortgage lender (the bank or building society) can take action to repossess the house. There is nothing your trustee can do to prevent this.

Keeping up the mortgage payments in these circumstances is like paying rent to keep a roof over your head. But it does not alter the fact that the house belongs to the trustee who can sell it at any time they think appropriate. You will not receive any of the proceeds of sale (unless there is a surplus remaining after the trustee has recovered all the costs of the sequestration and has paid your debts, with interest).Even if there is sufficient equity to justify the expense of selling the house, your trustee must consider whether anyone else has rights to the property. For example, even if your spouse has no property rights as such, they may have occupancy rights under the Matrimonial Homes (Scotland) Act 1981.

In such a case, your trustee must either obtain the consent of the person with occupancy rights or, if that is refused, the authority of the Sheriff, in terms of section40 of the Bankruptcy (Scotland) Act 1985. If your trustee has to apply to the Sheriff, the person with occupancy rights will be able to appear in court to argue why the application should not be granted. The Sheriff may, after hearing objections, grant your trustee authority to sell. This allows your trustee to take the necessary action to enforce their rights. This can include taking action to evict if necessary. Sometimes the Sheriff may grant the application but delay its effect for 12 months so that the family has adequate time to find somewhere else to live.

It is also possible that the Sheriff might refuse authority to sell. This might be because children of the family are at a crucial stage in their education or because of ill-health of someone who lives there.

But you must be clear that even if the Sheriff does refuse your trustee's application to sell, this does not affect their ownership rights. Your trustee can make repeated applications to the Sheriff whenever they think the circumstances leading to the Sheriff's refusal of the last application have changed.

It is not just spouses who have occupancy rights. Children of the family also have these rights and your trustee cannot sell the house without consent by or on behalf of the children. (For this purpose, a child of the family is any child or grandchild of the debtor, spouse, or former spouse and any child who has been brought up or accepted by the debtor, spouse or former spouse, as if they were a child of the debtor or spouse, regardless of the age of the 'child'.)

These protections only apply to the family home and not to any other residential property which you own. For these purposes a family home is defined as a property where on the day before the date of sequestration, the debtor and/or spouse or former spouse, were living, together with any children.

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What if the house is jointly owned by me and my spouse or partner?

If you own the house jointly with your spouse or partner, or even with anyone else, your trustee will not be able to realise your interest in the property without the co-operation of the joint owner.

Sometimes the joint owner agrees to sell the property and pay half the net proceeds directly to the trustee. Alternatively, the joint owner may agree to your trustee selling the property.

Another possibility is that the joint owner buys out your trustee's interest. They will normally agree to such an arrangement if they get the current equity value. Your trustee and the joint owner would each pay their own legal expenses.

If the joint owner does not co-operate in a sale and is unwilling or perhaps unable to buy out your trustee's interest in the property, they can ask the court for authority to sell (this is called an action for division and sale).

As with an application for authority to sell under section 40 of the Act, the joint owner has the right to defend the action. The court may grant or refuse authority to your trustee, with exactly the same consequences..

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What happens if the house remains unsold after 3 years and I have obtained my discharge from the sequestration?

This makes no difference to your trustee's right to sell the property in the interests of your creditors. What it does mean however, is that you can, if you are able, buy out the trustee's interest yourself by paying enough to cover the current equity value and any costs they have incurred in relation to the property. If there is still little or no equity, your trustee may agree to transfer their interest back to you for a nominal sum plus costs.

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What action will the trustee take to stop me from selling the house?

Your sequestration is recorded in an official register called the Register of Inhibitions and Adjudications. That entry expires on the third anniversary of your sequestration but the trustee can renew it every 3 years as long as they remain in office. As long as that entry remains in the Register, you cannot legally sell your house even though the title remains in your name.

In certain circumstances, the trustee may choose to have the title formally transferred into his own name and to apply for his own discharge, instead of repeatedly renewing the entry in the Register of Inhibitions and Adjudications.

If the trustee does this and you subsequently want to sell the house or buy it back, you would first need to petition the court to re-open the sequestration and appoint a new trustee so that the necessary disposition could be signed. Doing this, of course adds considerably to the costs.

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Is it in my interest to prevent the sale of the house?

This is really for you to decide. In the short-term, a delay might be useful to allow enough time for you to find other suitable accommodation (although your trustee would probably agree to a delay for that purpose anyway). If you continue to delay or prevent a sale to or by your trustee, you should be aware of the consequences:

1. you will be unable to sell the house yourself if you want to move home.
2. you will not be able to leave the house to your family.

In the end, your trustee has to be paid the value of the house. As they are entitled to receive the full equity value at the time of sale, the longer such a sale is delayed the more expensive it will become to buy out their interest in the property. The fact that you may have continued to meet the mortgage repayments does not increase your interest in the property nor affect your trustee's right to receive the full equity value.

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What price will my trustee accept?

If your trustee agrees to sell the house by private treaty, that is, without putting it on the open market, they will look to recover not just the current equity, that is the net value at the time of sale, but also any costs or expenses they have (for example, any legal costs incurred in seeking to obtain authority to sell). If they sell on the open market, they will want to obtain the best price possible after reasonable advertisement of the property.

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What if I have an endowment policy?

Usually endowment policies are formally assigned to the bank or building society and when the property is sold the policies are surrendered and the proceeds used to satisfy or reduce the outstanding mortgage. If the policies are not assigned they become the property of your trustee who may sell or surrender them as appropriate..

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What is the bottom line?

 

The bottom line is that if you own your own house, either wholly or jointly with another person, your trustee has the right to insist on the house, or at least your share of it, being sold. Their right to sell the house can be delayed but it cannot ultimately be denied. The only way in which you can recover or retain the ownership of the house is for your spouse or partner, or some other member of your family, to buy out your interest in the property, or for you yourself to do so, after you have been discharged.

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Where can I get further information?

Further information may be obtained from us at:

Accountant in Bankruptcy
PO Box 8313
Irvine
KA12 2AA
LP - 4 Irvine
E-mail: helpline@aib.gov.uk
Telephone helpline: 0845 7626171
(calls charged at local rates)

Disclaimer:

The information given on this page is for general guidance only. It is not a detailed or full statement of law.

© Accountant in Bankruptcy - Updated December 2004