What is meant by the ‘family home’

The term ‘family home’ is really short-hand to describe a certain type of property interest that is subject to particular special provisions within the insolvency legislation (see Part 3).  The term only has relevance when dealing with a bankruptcy.


What is the consequence of a property being the family home?

Where the property is the family home, any interest held by the bankrupt in the property at the date of the bankruptcy order will re-vest in him/her after a period of three years unless it is dealt with by the official receiver, as trustee (see paragraph 31.3.72).


And if the property interest re-vests?

Then it would be lost to the estate.  Which is likely to be a very bad outcome for the official receiver leading, probably, to the department having to compensate creditors.

These provisions are not known as the ‘use it or lose it’ provisions for nothing.


The re-vesting will be three years after the bankruptcy order date?

Assuming that the official receiver is aware of the bankrupt’s interest in the family home within three months of the order then the property would re-vest on the third anniversary of the making of the bankruptcy order.

If the official receiver becomes aware of the property interest after that initial three months then it will re-vest on the third anniversary of the date that it came to the attention of the official receiver.

See paragraph 31.3.80.


Can that three year period be extended?

Yes it can.  This is most likely to be appropriate where the property interest cannot be accessed until after the expiration of the three year period.  An example of this would be where the bankrupt has an interest in the former matrimonial home that cannot be realised until a child of the former marriage reaches 18.  Another example would be where the property is held on trust for the bankrupt – only devolving some years in the future (see paragraph 31.3.85).


Can the period be extended simply because the official receiver has not had time to deal with the property?

No.  Administrative difficulties are not considered to be a valid reason to extend the period.  Similarly, the period cannot be extended after it has expired.


Are there any circumstances in which the property interest can re-vest sooner than three years?

There is provision in the Act for early re-vesting of the property interest, but this would only be carried out in tightly constrained circumstances – generally where there is no chance of the property recovering from a position of negative equity (see paragraph 31.3.87).


What do you mean property ‘interest’

In most cases this will be bankrupt’s direct share in a property as at the date of the bankruptcy order, but it may equally be an indirect interest, such as a charging order over the property following matrimonial proceedings, or a right to buy the property. 


Are all properties of the bankrupt the family home?

No.  For a property to be considered the family home it must a dwelling house that is the sole or principle residence of the bankrupt, the bankrupt’s spouse or civil partner or a former spouse or civil partner of the bankrupt.

The definition of spouse/civil partner would not include a partner even if there were children from the relationship.

See paragraph 31.3.71.


What if the property is not the family home?

If the property is not the family home (generally, this will be a commercial property or a second property held for investment purposes or holiday home), it will vest in the estate and will remain vested until the property interest is realised.


Given the qualification criteria for the family home, I presume that it is possible for there to be more than one family home in a case?

Yes, for example where the bankrupt lives in one property, his estranged wife lives in another and a former (divorced) wife lives in a third (see paragraph 31.3.79).


But, presumably, a second home or investment property rented out to a third party would not qualify?

That’s right.  A second home, or holiday home, would not be the principle place of residence, and an investment property rented to someone other than the bankrupt’s spouse, civil partner or former spouse of former civil partner would also not qualify.


What is meant by ‘dwelling house’?

Dwelling house is defined in the Act as including any building or part of a building which is occupied as a dwelling and any yard, garden or outhouse belonging to the dwelling house and occupied with it (see paragraph 31.3.75). 


Could a houseboat or a caravan be the family home, considering the definition of dwelling house?

It is unlikely that a boat could be considered to be the family home, it not being a building.  So far as a caravan is concerned, this would depend on the extent to which it was fixed to the ground and connected to mains services (see paragraph 31.3.76).


In what ways can the official receiver ‘deal’ with a property interest such as to prevent it re-vesting?

The Act provides a number of ways that a property interest may be dealt with, but the ones most likely to be engaged by the official receiver, as trustee, would be a sale of the interest (back) to the bankrupt or a third party introduced by the bankrupt, or to apply for a charging order over the bankruptcy estates interest (see paragraph 31.3.83).


How will interested parties know that a property is the family home?

The official receiver is required to issue a notice to each of (as appropriate) the bankrupt, his/her spouse, his/her civil partner, his/her former spouse or his/her former civil partner them notifying them that the interest in the property forms part of the bankruptcy estate (see paragraph 31.3.82).


Would the official receiver deal with all family home interests?

No.  Generally speaking, any interest greater than £10,000 should be handled by an insolvency practitioner, subject to local conditions, unless there is a willing purchaser (see paragraph 31.3.173).


What is the purpose of these provisions?

There had been concerns that trustees sitting on vesting properties for a prolonged period of time whilst they increased in value, then forcing a sale sometimes 10 or more years after the order was unfair of the bankrupt and his/her family.  The provisions also had the purpose of supporting the concept of bankruptcy being a fresh start and also to reduce the stigma of bankruptcy (see paragraph 31.3.70).


But there must still be properties on protracted registers from before the new provisions came into force?

The provisions came into force on 1 April 2004 and applied to any cases where the petition was presented on or after that date.  It was also provided however that properties vesting at 1 April 2004 had to have been dealt with by 1 April 2007, otherwise they would re-vest (see paragraph 31.3.73).


Can a property that comes into the estate after bankruptcy be the family home?

No.  A property must form part of the estate as at the date of the making of the order to be considered a family home.  An example of where this exclusion would apply would be a property returned to the estate following a successful action to recover a transaction at an undervalue, or a property claimed as after-acquired property (see paragraph 31.3.74).