Can I Sell My House to Avoid Bankruptcy?

Being declared bankrupt is one of the most distressing consequences of financial difficulties. From thinking it is all under control one minute to not knowing if you’ll have a place to live the next, it’s a stressful and confusing time. Many people in debt look to sell off assets as quickly as possible to avoid bankruptcy, but is it as simple as that? Well, it’s a bit of a grey area. Much depends on your ownership status and whether you are already facing bankruptcy. In short, you can sell your home to avoid bankruptcy if you still legally own it and no bankruptcy order has been made against you.

If neither of those applies, things can get a little more complicated.

What is bankruptcy?

Bankruptcy is a legal process that takes place when you are unable to pay your debts. It enables you to start afresh, albeit with a weakened credit score, and allows creditors to claim back some of what is owed to them.

Can I sell my house before bankruptcy?

Yes, if your money worries are starting to mount but have not yet escalated to the commencement of bankruptcy proceedings, you can still sell your house. This could then help you pay off some of the debt, avoid bankruptcy altogether and hopefully allow you to retain more control over your finances.

However, you can only do this if you are still the legal owner of the property. If your home has already been put under the control of a trustee, bank or other third party, this won’t be an option you can pursue.

You should also be aware that while selling is possible, selling and then giving away or hiding any equity to prevent an Official Receiver from obtaining it could result in legal action being taken against you. Even if bankruptcy wasn’t a consideration, such action is not allowed.

Do you have to sell a house if you are bankrupt?

Not necessarily. It depends on whether you are in negative equity or not. If your home is in negative equity but there is a chance it appreciates over the next three years, you may not need to sell. The appointed Trustee or Insolvency Service has a three-year window in which they can decide what to do with your home. They will assess the equity and then decide if it is best to sell the property. If selling is viable, they will obtain a charging order or apply for an order of sale. If there is no equity or the cost of selling outweighs the benefits, they may disclaim any interest in the property.

If an agreement is not reached with the trustee or insolvency service for you to remain in the property, repossession proceedings can begin within months of a bankruptcy being declared. However, circumstances such as whether children live in the property mean that a one-year grace period might be considered before any further proceedings take place.

Could I transfer ownership of my home to avoid bankruptcy?

If you are worried that bankruptcy is imminent, and you don’t want to lose your home, you may be tempted to transfer the ownership to someone else. A partner, for example. This is a bit of a grey area though.

You can transfer your home and avoid bankruptcy, but if you were to transfer ownership and then be made bankrupt, things could get complicated. In a case such as this, the trustee has the power to review any transactions made before a bankruptcy order was made. Timing is important.

Transactions made up to five years before a bankruptcy order can be reviewed, especially if you were already insolvent at the time. Transfers within two years are highly likely to be reversed. If the trustee believes the transfer was intended to put assets beyond the reach of creditors, there is no time limit to act.

The result of this review could see the property returned to your estate.

Can I sell my joint ownership home to avoid bankruptcy?

If your home is jointly owned, only your share can be used to repay any creditors. However, this may still result in a forced sale if the other owner is unable to buy your share.

How can I sell my house to avoid bankruptcy?

There are some options to consider, but the speed at which you act is important. If your financial situation is worrying you and you fear that bankruptcy or repossession is likely, you could sell your property to clear debt.

Selling with a high street estate agent

You could choose to sell your property with an estate agent. The house could sell above market value, not only clearing debts but also generating enough cash to put towards a new property. The biggest downside though, is the time it takes. Properties in the UK can take as long as six months to sell, and when speed is your prime objective, it isn’t the best route to take.

Selling at auction

You could choose to sell your house at auction; it’s a fast way to sell, and buyers are tied into a contract the moment the gavel falls. However, with the various fees and the lack of a guaranteed sale, it could be a process that costs you lots of money with no sale at the end of it.

Selling to a cash house buyer

A cash house buyer presents the ideal way to sell your house fast. Whilst the full property value is unlikely to be matched, the speed of the transaction and the fact that there are no fees, means it presents the easiest and cheapest way to sell. At Bettermove, for example, we make an offer, and if you accept it, the entire process can be completed in just seven days. You can then use the funds to reduce or clear your debts well in advance of any bankruptcy proceedings.

If you are worried about your financial situation and need impartial, independent advice, StepChange or the Citizens Advice Bureau can help. Their free guidance can be crucial in helping you navigate complex financial situations.