Credit Due for Mortgage Payments in Bankrupt House Sale

When a person is made bankrupt, their trustee in bankruptcy will seek to unlock any available assets they have to pay off creditors.

One of the main assets people hold is their house, which is often co-owned with a spouse or partner. It is common for the trustee in bankruptcy to seek to force a sale in such cases. In a recent case, the High Court gave a ruling which may have important implications for those in this position.

It involved a man who co-owned a property with his wife as joint tenants, which meant that they both owned the property in its entirety, not a specific proportion of it each. However, the couple had become estranged from one another and the husband had neither lived in nor contributed anything towards the cost of ownership of the property. The property was originally bought in 2001 and the husband was made bankrupt by HM Revenue and Customs in 2012, with a debt to them of £83,000.

By 2016, the property was worth £450,000 and the outstanding mortgage was slightly more than £200,000.

In 2015, an order was made by a district judge that the property should be sold and half of the net proceeds paid to the trustee in bankruptcy.

The wife appealed against the order on the ground that she had contributed considerable sums towards the cost of owning the property, whilst her husband had contributed nothing, and that this should be taken into account.

The Court partially accepted her argument, ruling that the sale proceeds should firstly be split equally between the trustee and the wife, but that she should be given credit for half of the payments she had made under the mortgages on the property from their inception to the date of sale.

An argument that the payment to her should be reduced to take account of the value of the benefit of occupation (deemed rent) was rejected.

If you are under severe financial pressure, taking legal advice as early as possible is sensible: often, a negotiated position can be reached with creditors.