How is your rented property affected when you are bankrupt? Fiona Gaskell of Clough & Willis explains how insolvency affects rented property.

Is your rented property affected when you are insolvent?

Whether your rented property is affected when you are insolvent will very much depend upon the type of tenancy that you have and who your landlord is.

If you rent from a social landlord, it’s unlikely that being made bankrupt will affect your ability to live in the property. However, if you rent from a private landlord, they may be more concerned about the fact that you have been made bankrupt and may be less happy for the tenancy to continue.

Will your landlord be told if you are bankrupt? 

When you are made bankrupt or you declare yourself to be bankrupt, you are obliged to give details of all your creditors (anyone that you owe money to). So, if you are in arrears with your rent, your landlord is a creditor and they should be listed as such. Following the making of a bankruptcy order, the official receiver or your trustee in bankruptcy will contact all of your creditors and will ask them for details of the amount of their debt and how it arose.

If you are not in arrears of rent, then your trustee may feel that there is no need to contact the landlord as payment of rent would be a normal living expense. The trustee would not normally interfere with this in the same way that they would not normally interfere with you incurring other living expenses, such as payment of council tax and utility bills. The position may be different if the rent is very high and beyond what would normally be paid for that type of property and if the landlord is a family member.

It should be noted, however, that the official receiver will place a notice of your personal insolvency in The Gazette, which publishes legal notices and provides a permanent public record of your bankruptcy.

Is your home at risk if you are insolvent?

Your home is at risk if either you or your partner are bankrupt depending on whether your landlord is a social landlord or a private landlord:

• Social landlord

If your landlord is a social landlord, they are much less likely to be concerned about whether either you or your partner are bankrupt. However, they are likely to be concerned if you are in arrears with your rent and it is the existence of rent arrears which is likely to cause the problem rather than your status.

• Private landlord

A private landlord may have a term in the tenancy agreement which enables them to forfeit the lease in the event of a tenant being made bankrupt. As this would be a residential tenancy, they will still need to go through the normal possession procedures in order to recover possession.

Assured shorthold tenancies (ASTs)

Most private landlords will grant assured shorthold tenancies (ASTs). If the tenancy is drawn up properly and all of the relevant documents that should be served on the tenant at the beginning of the tenancy have been served, such as a Gas Safety Certificate, an EPC and information about how the tenants rent is protected, a landlord is entitled to ask the court to make a possession order under the assured shorthold ground. This is irrespective of whether the tenant is in breach of the tenancy or in rent arrears.

If the landlord satisfies all the criteria, this would give rise to a mandatory ground for possession, which means that the court will be obliged to make an order for possession. This is something which the government has said it will reform and make it harder for private landlords to recover a property from a tenant who is not at fault.

The AST itself may also show bankruptcy as a ground for terminating the lease. This would be under ground 12 (“Breach of tenancy obligation”), one of the discretionary grounds. It does, however, seems unlikely that a court would exercise its discretion and make someone homeless by reason of bankruptcy without more. Two weeks' notice of proceedings is normally required, and this ground covers a breach of any term in the tenancy agreement other than rent.

If a landlord cannot rely on the assured shorthold ground, they may still apply for possession if the tenancy provides that being bankrupt is a breach of the tenancy. This, however, will be a discretionary ground for possession and so the court will have the ability to refuse to make such an order if it considers it would be unreasonable.

Rent arrears

Bankruptcy is not of itself a ground for possession, but rent arrears are. However, the court may be restricted from making a money judgment against a bankrupt tenant.

If the arrears are provable in the bankruptcy (that is, 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.

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

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

If the rent arrears arenot provable in the bankruptcy (that is, 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.

If a tenant is in serious rent arrears, a landlord may apply for possession if the amount of the arrears are more than two months or eight weeks, depending upon how the rent is paid. This would be a mandatory ground for possession.

As mentioned, a social landlord is unlikely to be concerned about the status of a tenant but will be concerned about the existence of rent arrears. They may not be able to rely on the AST ground, but they could bring a claim for rent arrears which might be a ground for possession, for debts not provable as previously explained. They are also obliged to comply with a protocol showing that they have worked with tenants who are in financial difficulties to overcome any problems concerning rent arrears of other breaches of the tenancy.

COVID-19

It should be noted that because of COVID-19, the normal notice periods in order to commence possession proceedings relying on the assured shorthold ground has been extended to six months, and generally the notice period for any breach of the tenancy is also six months. However, these will almost certainly be reduced once the pandemic is viewed as being at an end.

Can you move home if you are bankrupt?

You can move home if you are bankrupt and you can also rent another property. However, you should be aware that most landlords and their agents will carry out checks on prospective tenants. This is to find out whether the tenants have:

• a good credit rating
• any judgments against them
• the ability to pay the rent going forward

It’s likely that the registration of a bankruptcy order will severely affect the credit status of a prospective tenant and this may deter many landlords from agreeing to take on a bankrupt as a new tenant.

It’s possible that a landlord may be persuaded to grant a new tenancy if the bankrupt is only one of the joint tenants and the credit status of the other tenant is good or if the tenant is able to offer someone to act as a guarantor for the rent and other obligations on the property.

About the author

Fiona Gaskell is a Partner and Dispute Resolution Solicitor at Clough & Willis, who specialises in property disputes and insolvency, acting for private individuals, insolvent businesses and trustees, liquidators and administrators.

See also

What restrictions are there during bankruptcy?

What is the role of the trustee in bankruptcy?

Can you inherit assets when you are bankrupt?

Image: Getty Images

Publication date: 3 February 2021

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.