Can Jointly Owned Property Be Seized?
A jointly owned property can be seized in the UK, but it depends on the ownership structure and if there is a deed in place. Imagine you own a home with your partner. Suddenly, they face unexpected financial difficulties and declare bankruptcy. What happens to your home? Can you be forced to sell?
In these situations, individuals known as "Trustees in Bankruptcy" are appointed to manage the bankrupt person's assets. A common misconception is that jointly owned property is automatically divided equally between all owners.
In reality, how your property is owned—either as joint tenants or tenants in common—and whether you have a formal agreement in place, such as a Deed of Trust, significantly impacts what happens in a bankruptcy situation.
Types of Joint Ownership: Joint Tenancy vs Tenants in Common
When you buy a property with someone else in the UK, you can own it in one of two ways: as joint tenants or as tenants in common. Understanding the difference is crucial, especially in situations involving bankruptcy.
Joint Tenancy
Joint tenancy is most common among married couples or civil partners. The key feature of joint tenancy is the "right of survivorship." This means that if one owner dies, their share of the property automatically passes to the surviving owner(s), regardless of what their will says.
In a joint tenancy, all owners have an equal and undivided interest in the entire property. If one joint tenant becomes bankrupt, their share is still part of the joint ownership, but a trustee in bankruptcy can apply to the court to sever the joint tenancy (turning it into a tenancy in common) and then claim the bankrupt's share.
Tenants in Common
Tenants in common is a typical ownership structure among friends, family members, or business partners buying property together. Each owner holds a distinct share of the property, which can be equal or unequal (e.g., one owner might own 60%, and the other 40%). Unlike joint tenancy, there is no "right of survivorship."
If one owner dies, their share of the property becomes part of their estate and is distributed according to their will. This is a key difference in bankruptcy scenarios, as a trustee in bankruptcy can directly claim the bankrupt's defined share of the property.
Having a legal agreement, such as a Deed of Trust (sometimes known as a Declaration of Trust), is critical for tenants in common. This document clearly states each owner's beneficial interest in the property, which is essential for protecting your investment, especially in the event of bankruptcy.
Protect your interest in a property and confirm how to sell. Drafted by a solicitor.
The first draft is within 1 to 2 working days* and includes:
- Deposit paid.
- The percentage ownership of each party.
- How to share expenses like the mortgage and bills.
- Share of property income - rent or gain on sale.
- How to sell the property.
- How the property is divided in the event of separation, divorce, or death.
What happens in bankruptcy?
If one joint owner of a property becomes bankrupt, it can have significant implications for all owners. The process differs slightly depending on whether you own the property as joint tenants or tenants in common.
Bankruptcy and Joint Tenancy
When a joint tenant is declared bankrupt, a trustee in bankruptcy is appointed to manage their assets. The trustee will typically file a Form J with the Land Registry, effectively severing the joint tenancy, and converting it into a tenancy in common. This means that each owner now has a distinct share of the property.
The initial assumption after bankruptcy might be an equal split, so the non-bankrupt owner can provide evidence to demonstrate a different beneficial interest. If there's no evidence available, the trustee will proceed based on an equal split.
The non-bankrupt owner usually has 12 months to either buy out the bankrupt's share or sell the property to release the equity, which will then be used to pay off the bankrupt's debts. It’s important to note that even though your credit rating will not be directly affected, obtaining credit may be difficult as your home will be associated with bankruptcy.
Bankruptcy and Tenants in Common
If the property is owned as tenants in common, the process is slightly different. The trustee in bankruptcy will still file a Form J, but because each owner already has a defined share, the trustee can directly claim the bankrupt's share.
Again, if there is no formal agreement like a Deed of Trust specifying unequal shares, the trustee assumes an equal split. Having a Deed of Trust in place as a tenant in common will protect the financial contributions you've made towards the property.
This can be especially important if you have contributed a larger deposit, made significant mortgage repayments, or funded renovations. Without this evidence, you may have to rely on proving a resulting or constructive trust, which can be a complex and costly legal process.
Attempting to transfer property to avoid bankruptcy can have serious legal repercussions. Transactions within the past five years can be reversed by the trustee, and intentionally misleading creditors can lead to criminal charges.
It's important to understand that you will not be immediately evicted from your home following a co-owner's bankruptcy. The process takes time, and options are available to protect your interests.
Different types of Deeds of Trust exist, such as those with fixed shares or 'floating' shares that reflect changing contributions over time. Our solicitors can advise you on the most suitable option for your circumstances.
Options for joint owners facing bankruptcy
If your co-owner is facing bankruptcy, you have several options to consider to protect your interest in the property:
Buying out the bankrupt's share
You can buy out the bankrupt owner's share of the property. You'll need to contact the trustee in bankruptcy or the official receiver to negotiate the purchase. The Insolvency Service offers a Property Conveyancing Scheme to assist with the legal transfer of the beneficial interest.
This scheme involves certain costs, including conveyancing fees, a fee to cover the official receiver's legal costs, the cost of an independent valuation, and the agreed purchase price for the share. It's crucial to have up-to-date details of the mortgage and any other charges on the property.
If the bankrupt owner was a primary contributor to mortgage payments, this can create immediate financial strain. If this is the case, you need to contact your mortgage lender as soon as possible to discuss potential options, such as payment holidays or refinancing.
Selling the property
Another option is to sell the property and divide the proceeds according to the ownership agreement (or equally if no agreement exists). The trustee must be paid the bankrupt's share from the sale.
Consequences of inaction
You typically have 12 months from the date of bankruptcy to reach an agreement with the trustee regarding the bankrupt owner's share. If no agreement is reached within this timeframe, the trustee may apply to the court for an order of possession or sale. The trustee has a 3-year time limit from the date of bankruptcy to initiate these proceedings.
Dealing with bankruptcy and joint ownership can be stressful and you might be wondering about your legal options no matter which side of the fence you're on.
Our expert solicitors can help you navigate whatever problem you have. Contact us today for a free initial consultation on our deeds services and how they can work for you. Property challenges solved.
We provide this severance and registration at the Land Registry for £260 INC VAT. You will need to upload your notice of severance.
Contact us through our online form below for a fixed-fee, no-obligation quote for our services.
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
