One of the most frequently asked questions about bankruptcy in Ireland is “what happens to my family home in bankruptcy”? It’s natural that this concern is high on the agenda for people in insolvency and facing debt arrears they cannot overcome.
It’s important to understand what the consequences of bankruptcy may be for the family home. So, in this article I want to address some of the key points relating to bankruptcy and the family home. This will help you to grasp the potential consequences for your own particular bankruptcy situation.
When you’re adjudicated bankrupt…
The first thing to note about your family home in bankruptcy is that, when you are adjudicated bankrupt all of your assets vest into the Official Assignee (OA). Exceptions include the necessaries of life up to a value of €6,000 and pensions in certain circumstances.
Your family home is not an exception. Your ownership or interest in a family home or principal private residence will vest to the Official Assignee.
However, the family home in bankruptcy is treated differently to other assets.
With other assets the OA will sell them to raise money to pay to creditors. But the OA is not entitled to sell a home without permission of the High Court and if he/she has not moved to sell the home within 3 years the property automatically vests back to you.
In general, the OA will not move against a home until after the second year, post-bankruptcy.
During the third year he/she will get a valuation of the home and if it is in negative equity (the value is less than the mortgage) the OA will simply allow the property to vest back to you (the former bankrupt) – if you consent.
However, if the property is in positive equity the OA will be under a duty to realise that positive equity by seeking the sale of the interest.
What about homes that are co-owned by someone who is not bankrupt?
In many cases homes are co-owned and where the co-owner, often a spouse, has not been bankrupt an issue arises.
Ideally the OA would want the co-owner or the former bankrupt to purchase the interest in the home from him/her.
Where this is not possible he/she will need to seek the sale of the property.
However, a Court has discretion and is unlikely to force the sale of a property owned in part by somebody who is not bankrupt without taking the interest of that co-owner into account.
The Court could, at the very least, postpone the sale.
As this area is new to Irish law we will have to wait and see how the Courts deal with it and how they treat the interest of non-bankrupt co-owners where there is positive equity in the property.
Mortgage and Bankruptcy
It’s always important to remember that where the home is mortgaged, bankruptcy does not affect the mortgage and it will be necessary to continue to pay the mortgage to retain the home.
If, however, a bankrupt wants to leave the home the debt will have been written off against him/her in full. For this reason it can be advantageous in certain circumstances.
Every bankruptcy situation is different
Every insolvency and bankruptcy situation is different, and so this article is meant only as a rough guide for what can happen to your family home in bankruptcy. It’s always important to consider with advisors the full implications of bankruptcy on your individual circumstances before embarking on the bankruptcy process.
If you have any questions on this topic or want to share your own experience or advice on bankruptcy and the family home please feel free to leave a comment below. In the meantime, if you would like more articles and advice in the area of mortgage arrears, insolvency and bankruptcy why not sign up to the New Beginning newsletter.