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Bankruptcy and possession

This content applies to England

The implications of the bankruptcy of the tenant on possession proceedings.

If the tenant has been declared bankrupt (or an application for bankruptcy is pending against her/him), the possession proceedings can continue but there are restrictions on the rent that the landlord can recover. Bankruptcy is an insolvency measure for individuals unable to pay their debts when they become due.

More information about bankruptcy is available from the Insolvency Service.

Remedies and restrictions against the bankrupt tenant

While a tenant is subject to bankruptcy procedure (ie s/he is either an undischarged bankrupt or a bankruptcy petition is pending against her/him) there are restrictions on proceedings and remedies that can be taken against her/his property.

In particular, no creditor in respect of a 'debt provable in the bankruptcy' (ie a debt incurred and due for payment prior to the making of the bankruptcy order) shall, without the leave of the court:[1]

  • have any remedy against her/his property in respect of that debt, or
  • start any action or other legal proceedings against her/him.

These restrictions apply in respect of any of the tenant's property.[2] For this purpose, property includes money, goods, land in the UK or elsewhere, and rights and liabilities over property.[3] A tenancy has generally be held to be property.[4]

However, the above restrictions do not affect the right of mortgage lenders or other secured creditors to enforce their security.[5]

Possession proceedings during bankruptcy

Possession proceedings are a claim in respect of the 'property' of a bankrupt tenant, but they are not a 'remedy in respect of that debt' within the meaning of the Insolvency Act 1986.[6] This applies regardless of the tenant's security of tenure.

Hence, the landlord of a bankrupt tenant does not require the permission of the court to start or continue possession proceedings, on the ground of rent arrears or any other ground, in order to obtain possession of the property. However, where possession is sought on the grounds of non-payment of rent there are restrictions on the jurisdiction of the court to deal with the money side of the landlord's claim for possession.

If the arrears are provable in the bankruptcy (ie they accrued before the bankruptcy order was made), the court can make an order for possession, but cannot suspend it or postpone it on terms of payment of those arrears. The landlord will also be unable to obtain a money judgment for those arrears.

If the rent arrears are not provable in the bankruptcy (ie they accrued after the bankruptcy order was made), the court can suspend or postpone an order for possession on payment of current rent and rent arrears that are not provable in the bankruptcy .

What happens to the rent arrears

An implication of the making of a bankruptcy order against a debtor is to freeze all her/his debts accrued before the bankruptcy order. These 'provable' debts are either repaid to the creditors by the trustee in bankruptcy during the bankruptcy period (usually one year) or written off at the end of it.

Pre-bankruptcy rent arrears

Rent arrears which the tenant owed at the date of the bankruptcy order are debts provable in the bankruptcy. As such, the tenant's landlord is a creditor in the same way as other pre-bankruptcy creditors of the tenant and must claim the arrears from the trustee in bankruptcy (see below). The tenant should only pay the arrears through the trustee.

Rent arrears in joint tenancies

When the bankrupt tenant is a joint tenant and s/he is the only tenant declared bankrupt, the landlord can seek to recover all the rent arrears from the non-bankrupt joint-tenant(s).

Post-bankruptcy rent arrears

Rent arrears that accrued after the making of the bankruptcy order are not affected by the bankruptcy. The bankrupt tenant is liable to pay rent (and any other debt) accrued after the making of the bankruptcy order. The landlord can deal directly with the tenant and take recovery action, including the possibility of possession proceedings.

Role of the trustee in bankruptcy

The bankrupt's estate vests automatically in the trustee in bankruptcy on the making of the bankruptcy order and comprises all property belonging to, or vested in, the bankrupt at that moment.[7] The trustee in bankruptcy (either the Official Receiver or an insolvency practitioner) is appointed to realise the interests of the creditors and will manage the bankrupt estate accordingly.

Residential tenancies

Most types of tenancies created by statute do not vest automatically in the trustee, so the tenant will retain her/his security of tenure. These include:[8]

  • secure tenancies
  • assured tenancies, including assured shorthold tenancies
  • agricultural occupancies with statutory protection
  • Rent Act protected tenancies.

These tenancies do not usually hold any financial value for the trustee or the creditors. However, the trustee can elect to have these tenancies vested in her/him by serving a notice on the tenant[9] if the tenancy can be assigned to realise money for the creditors (eg when the landlord of a Rent Act protected tenant offers money to the trustee in return for the possession of the property) or if the trustee wishes to disclaim the tenancy to end it (eg because the rent is very high and places too greater drain on the resources of the bankrupt).

It appears that introductory tenancies, demoted tenancies and family intervention tenancies do form part of the bankrupt's estate and therefore vest automatically in the trustee. These tenancies have no financial value for the trustee and the creditors but do place obligations on the trustee, including paying the current rent, and might therefore be disclaimed if the trustee considers that the property brings with it obligations that will make it uneconomical to retain it.

Need for consent of the trustee

There are strict restrictions placed upon the financial dealings of a bankrupt, including the sale and transfer of any property and the payment of bills. If a bankrupt person deals with assets which have vested in the trustee in bankruptcy without her/his consent, the trustee has a range of powers and can apply to the court for restraint injunctions and warrants of seizure of those assets.[10] In addition, a bankrupt person must fully cooperate with the trustee and disclose all the property comprised in her/his estate otherwise s/he could be find liable of bankruptcy offences.[11]

Housing advisers dealing with possession proceedings in relation to bankrupt tenants need to be prepared to deal directly with the trustee, as well as the tenant, and need to allow additional time for possible delays in all procedures. For example, the payment of the current rent accruing after the bankruptcy order from the tenant's available income requires the consent of the trustee. Further, if the tenant asks the court to suspend a possession order (on terms of the payment of costs or post bankruptcy arrears) this must be authorised by the trustee.

After discharge of the bankruptcy order

Unless the court decides otherwise, the bankrupt debtor is usually discharged from bankruptcy after one year from the making of the bankruptcy order.[12] The discharge has the effect to release the bankrupt from most of her/his debts that accrued before the making of the bankruptcy order, except for the following:

  • secured debts (including mortgages and charging orders, debts subject to a walking possession agreement ie goods left in the home by bailiffs for future disposal, and pawnbroking agreements)debts incurred through fraud
  • court fines
  • debts arising from liability to pay damages for negligence, nuisance, breach of a statutory, contractual or other duty
  • maintenance payments and/or child support payments, including lump sum orders and costs arising from family proceedings
  • student loans
  • budgeting loans and crisis loans (only for bankruptcy petitions presented on or after 19 March 2012)
  • in some cases, social fund loans and benefit overpayments resulted from fraud (see the Overpayments of housing benefit page for more on this).

The tenant is fully liable for all rent and debts incurred after the making of the bankruptcy order and after discharge.

More information about discharge from bankruptcy is available from the Insolvency Service.

Bankruptcy glossary

  • Bankruptcy petition: application to the court for a bankruptcy order
  • Bankruptcy order: court order adjudging an individual bankrupt
  • Bankruptcy estate: property belonging to, or vested in, the bankrupt person at the moment of the making of the bankruptcy order which vest in the trustee in bankruptcy
  • Bankruptcy trustee: the person appointed to take over the management of a bankrupt debtor's financial affairs (either the Official Receiver or a qualified insolvency practitioner)
  • Official Receiver: officer of the court who is notified upon the making of a bankruptcy order and who has the duty to investigate the conduct and affairs of the bankrupt person. The Official Receiver may also act as the trustee of the bankruptcy
  • Disclaimer: legal process that allows the trustee to renounce her/his interest in property. The effect of a disclaimer is to bring to an end the rights, interests and liabilities of the bankrupt or the bankruptcy estate in the property disclaimed
  • Debt provable in bankruptcy: debt incurred and due for payment prior to the making of the bankruptcy order
  • Discharge from bankruptcy: point in time from when the restrictions of the bankrupt person are removed and most of her/his debts provable in the bankruptcy are written off.

[1] s.285 Insolvency Act 1986.

[2] s.285(6) Insolvency Act 1986.

[3] s.436 Insolvency Act 1986.

[4] see Ezekiel v Orakpo [1977] QB 260; Knowlsley HT v White [2008] UKHL 70; Harlow DC v Hall [2006] EWCA Civ 156; Sharples v Places for People Homes Ltd: Godfrey v A2 Dominion Homes Ltd [2011] EWCA Civ 813.

[5] 285(4) Insolvency Act 1986.

[6] Sharples v Places for People Homes Ltd: Godfrey v A2 Dominion Homes Ltd [2011] EWCA Civ 813.

[7] s.283(1) Insolvency Act 1986.

[8] s.283(3A) Insolvency Act 1986.

[9] s.308 Insolvency Act 1986.

[10] see ss. 363-371 Insolvency Act 1986.

[11] see ss.353-362 Insolvency Act 1986.

[12] s.279 Insolvency Act 1986.

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