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Your home and sequestration

If you own your home, bankruptcy can put it at risk. Here is what the trustee can and cannot do, the rules that protect families, and how the 3-year rule really works.

Checked 7 min read

If you own your home and go bankrupt in Scotland, your share of the equity (the value left after the mortgage and any other secured loans) passes to your trustee, who can sell the home if that is the only way to pay your debts. For a family home, the trustee needs consent or a sheriff’s authority to sell, and a sheriff can delay a sale for up to 3 years. If the trustee takes none of the steps the law lists within 3 years, your interest normally returns to you.

Your home can be at risk. Ask a money adviser how your home is likely to be dealt with before you apply for bankruptcy, and keep paying your mortgage.

Our main guide to sequestration (the legal name for bankruptcy in Scotland) covers the basics. This page goes into the rules for homeowners in more detail.

What happens to your home when you are made bankrupt?

When you are made bankrupt, your estate (the things you own) passes to your trustee, the person appointed to manage your bankruptcy. This is usually the Accountant in Bankruptcy (AiB), the part of the Scottish Government that deals with insolvency. Your estate includes your right or interest in your home.

The trustee’s job is to get the most for your creditors. mygov.scot says that before selling, the trustee will look at the home’s value, whether any children live there and any loans secured on it. The trustee should arrange a professional valuation at full open market value.

When the trustee decides

mygov.scot says the trustee will discuss all the options for your home with you within the first year of your bankruptcy. AiB’s own guidance for trustees says it expects a decision to be made and action started against any property within that first year.

What the options can include

AiB’s guidance lists the things a trustee should consider, including:

  • Little or no equity. The trustee may give up their interest for a nominal sum. AiB says it will not normally agree to less than £550, to cover costs such as registering the abandonment.
  • Buying out the trustee’s interest. A spouse, joint owner, family member or other third party may be able to pay the value of your share of the equity instead of the home being sold.
  • Mortgage to Rent. Trustees are told to consider whether the Scottish Government’s Mortgage to Rent scheme should be put to you.
  • A sale, on the open market or privately, with the consent or court authority described below.

If you cannot pay your mortgage

Keep paying your mortgage. mygov.scot says that if you do not, the lender can repossess your home and the trustee cannot stop it. Anything left after the lender is paid goes to the trustee. If the sale does not cover the mortgage, the shortfall can be included in your bankruptcy. Our guide to mortgage arrears explains your options with the lender.

Does the trustee need permission to sell a family home?

Yes. Section 113 of the Bankruptcy (Scotland) Act 2016 protects a family home. The Act defines this as a home you had an interest in on the date of your bankruptcy and that was lived in by:

  • you and your spouse or civil partner
  • your spouse or civil partner, or former spouse or civil partner, even if you had moved out, or
  • you and a child of the family (a child or grandchild of you or your spouse or civil partner, or anyone brought up as your child, of any age)

Before selling, the trustee must get the relevant consent:

  • if your spouse or civil partner (or former spouse or civil partner) lives in the home, their consent
  • otherwise, if you live there with a child of the family, your consent

Without that consent, the trustee must get the authority of a sheriff (a judge in the local sheriff court). The trustee must tell your local council before starting court proceedings.

What the sheriff can do

The sheriff looks at all the circumstances, including the needs and financial resources of your spouse or civil partner and any child of the family, the interests of your creditors, and how long the home has been lived in. The sheriff can:

  • refuse the application
  • postpone it for up to 3 years
  • grant it, with or without conditions

The same powers apply if the trustee goes to court to divide and sell a jointly owned family home, or to get vacant possession. mygov.scot says the local council will treat you as homeless if the trustee tells you they need to sell your home, which means it must help you find somewhere else to live.

If your home is not a ‘family home’ as defined, for example you live alone or only with a partner you are not married to or in a civil partnership with, and no child of the family, the consent rules and the 3-year rule below may not apply. Ask an adviser how the definition fits your household.

What is the 3-year rule?

Section 112 of the Act says that 3 years after the date of your bankruptcy, your interest in a family home stops being part of the bankruptcy and returns to you automatically. This is often described as the home reverting to you.

It does not happen if, within those 3 years, the trustee has taken any of the steps the Act lists. These include:

  • selling the home or agreeing a sale
  • renewing the bankruptcy entry in the Register of Inhibitions, a public register that stops property being sold or borrowed against (see what an inhibition is)
  • starting court action for a sheriff’s authority to sell, to divide and sell, or for vacant possession
  • reaching an agreement with you to pay a set amount in return for the home being released back to you

Do not rely on the 3-year rule. Renewing the bankruptcy entry in the Register of Inhibitions is enough to stop the home reverting, and AiB’s guidance says trustees should renew it every 3 years until the property is dealt with. The rule helps you only if the trustee takes none of the listed steps.

Two more points can change the timing:

  • Telling the trustee. If you do not tell the trustee or AiB about your interest in the home within 3 months of your bankruptcy, the 3 years start from the date the trustee finds out instead.
  • A longer period. A sheriff can agree to a longer period on the trustee’s application.

The 3 years are separate from your discharge, which usually comes after 12 months. See how long sequestration lasts.

Worried about your home? Tell us a little about your situation and a licensed insolvency practitioner firm will call you to go through every option, including ones that are not a trust deed.

Start your enquiry

May not be suitable in all circumstances. Fees apply. Your credit rating may be affected. Free, impartial advice is available from MoneyHelper and other services.

What if you own your home jointly?

mygov.scot says the trustee can only take your share of the equity. Your co-owner’s share is not part of your bankruptcy. AiB’s guidance says:

  • your share can be sold to the co-owner
  • with the co-owner’s agreement, the whole property can be sold on the open market
  • if the co-owner does not co-operate, the trustee may raise an action of division and sale, a court action to have the property divided or sold

If it is a family home, the sheriff’s powers to refuse, postpone or add conditions apply to that court action too. Keep paying any joint mortgage while this is worked out.

If you rent your home, there is no equity to deal with. mygov.scot says you should check your tenancy agreement for anything about bankruptcy, and if your landlord is one of your creditors, the trustee will tell them about your bankruptcy.

How does this compare with other options?

  • Protected trust deed. Your share of the equity passes to the trustee, but the law lets the trustee agree not to sell in return for a lump sum or extra monthly payments that can run after the usual 48 months. The equity figure is fixed at a valuation taken when you sign, if you keep to the agreement. The same consent rules apply before a trustee sells a family home. A trust deed also has fees and goes on the Register of Insolvencies. See your home and a trust deed.
  • Debt Arrangement Scheme. You do not have to sell your home, but you repay your debts in full.
  • Minimal Asset Process. Not available if you own land or property, including a share in a house.

Which of these could fit depends on your equity, income and household. Free, impartial advice is available from free debt advice services, and you need money advice before you can apply for bankruptcy anyway.

Official sources

Common questions

Will I lose my house if I go bankrupt in Scotland?

Not always, but it is a real risk if there is equity in it. Your share of the equity passes to the trustee, who can sell the home if that is the only way to pay your debts. Where there is little or no equity, or someone can buy the trustee's interest, the home may not be sold. A money adviser can explain the likely outcome before you apply.

Does my house automatically come back to me after 3 years?

Only if the trustee has done none of the things the law lists within those 3 years. Those include selling, starting court action, reaching an agreement with you, or simply renewing the bankruptcy entry in the Register of Inhibitions. The rule only covers a family home, and the 3 years can start later if you did not tell the trustee about the home in time.

Can the trustee sell my home if my wife or husband lives there?

Not without their consent or a sheriff's authority. If your spouse or civil partner, or former spouse or civil partner, lives in the family home, the trustee needs their consent. Without it, the trustee must go to court, and the sheriff can refuse, delay the sale for up to 3 years, or allow it with conditions after considering the family's needs.

What happens if I own my home with my partner?

Only your share of the equity goes to the trustee. Your partner's share stays theirs. A joint owner can buy your share from the trustee. If a co-owner will not agree to a sale, the trustee can ask the court for an order to divide and sell the property, and for a family home the sheriff has the same powers to refuse or delay.

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