Joanne Radcliff, Family law Solicitor, considers the issues of bankruptcy and the family home

In this difficult economic climate concerns about potential bankruptcy can effect a great deal of people. It is perhaps unsurprising that marital difficulties often occur alongside these worries, as the pressure of financial uncertainty can place considerable strain on a family. It is important to understand the effect bankruptcy can have, not just on the bankrupt individual themselves, but also potentially on their family. Once an individual is made bankrupt all of their assets will vest in a Trustee in Bankruptcy (apart from a few exceptions). The Trustee can apply to sell any family home belonging to the bankrupt, whether it is owned solely or jointly, provided their share of the property has equity of £1,000 or more. SALE OF THE FAMILY HOME The Trustee has up to three years from the bankruptcy order to make an application for sale of the family home, unless they have applied to the court to extend that period or have obtained a charging order. When an application is made by the Trustee the Court will make the order it thinks is 'just and reasonable'. It must have regard to certain considerations:- • The interests of the bankrupt's creditors; • The conduct of the spouse, civil partner, former spouse, or former civil partner so far as it contributed towards the bankruptcy; • The needs and financial resources of that individual; • The needs of any children The Court must consider all the circumstances of the case, except the needs of the bankrupt, which are not treated as a relevant factor. If the application for sale is made after a year, the Court will assume that the interests of the bankrupt's creditors outweigh all other considerations unless there are 'exceptional circumstances'. EXCEPTIONAL CIRCUMSTANCES Generally, the Courts have taken a very narrow approach when looking at what are "exceptional circumstances" in this particular context. It is rare for families to prevent a property being sold, although there have been a number of cases in which the sale has been postponed for a period of time. The case of Re Haghighat (A Bankrupt) in 2009 showed the strict attitude the courts will generally take. Here the court agreed to postpone a sale up to a maximum of 3 years. The postponement was to provide the family with time to obtain suitable Local Authority housing for the wife and three adult children. The eldest child suffered from quadriplegic cerebral palsy, and needed constant care. The court accepted the son's condition was an exceptional circumstance but considered that deferring the sale for up to three years was appropriate, rather than refusing a sale altogether. Other cases have confirmed that the presence of minor children in the family home is not an exceptional circumstance and will not prevent an order for sale. Attempts have been made by family members to try and persuade the Court that selling a family home would be a Human Rights Act violation, but to date such arguments have failed. COURT ORDER ALREADY OBTAINED IN DIVORCE PROCEEDINGS There may be some protection for a spouse or civil partner in the event that they have already concluded their divorce/dissolution proceedings and associated financial proceedings before a bankruptcy order is made. In Haines v Hill in 2007 an order had been made transferring the family home to the wife in divorce proceedings, at a time when it was clear the husband was facing bankruptcy. The wife obtained Decree Absolute (the document which dissolves the marriage). Shortly after a bankruptcy order was made against the husband. The Trustee tried to set aside the transaction arguing that it had occurred at an undervalue as the husband had not received any payment for his share in the property. However, the Court of Appeal held that the transfer of the home had compromised the wife's financial claims against the husband as a result of their divorce and was therefore good consideration. It was not a transaction at an undervalue, despite the fact that the transfer did not give rise to an actual payment. The Court confirmed that a property transfer made as a result of financial proceedings upon divorce should be regarded as proper consideration unless the case was exceptional and the order had been obtained by fraud, or some broadly similar exceptional circumstances existed. As a result of this case it is clear that orders transferring the family home as a result of divorce proceedings will not be set aside if a spouse is later made bankrupt, provided the transfer was not entered into dishonestly to put the property out of reach of any Trustee in Bankruptcy. The family home can therefore remain with the other spouse/civil partner if it was legitimately transferred prior to the bankruptcy as a result of the family law proceedings. If you are contemplating divorce or dissolution proceedings and you believe there is a danger that your spouse/ civil partner may be made bankrupt, it is extremely important that you obtain family law advice at the earliest opportunity. The family team at Gateley have considerable experience in this area and are able to offer advice and assistance. For further information please contact Joanne Radcliff on 0161 836 7904 or by mail at JRadcliff@gateleyuk.com