When dealing with the possession of a bankrupt’s family home, insolvency practitioners look to Section 335A of the Insolvency Act 1986. During the first year of bankruptcy, courts must take into account;

  • the interests of the bankrupt's creditors;
  • the conduct of the spouse in contributing to the bankruptcy;
  • the needs and financial resources of the spouse;
  • the needs of any children; and
  • all the circumstances of the case other than the needs of the bankrupt.

After the first year, section 335A(3) comes into play. This provides:

“… after the end of the period of one year… the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt's creditors outweigh all other considerations.”

The debate over what are 'exceptional circumstances' is one that has been going on since the 1990 case of In Re Citro. Here the Court of Appeal ruled that the "melancholy consequences of debt and improvidence” are not enough to justify a delay in possession proceedings.

What is classed as exceptional is very much case specific and not something governed by set rules. Previous reasons which have been ruled as exceptional include sudden, grave or unforeseen illness (Judd v Brown [1997] BPIR 470) and paranoid schizophrenia (Re Ravel [1998] BPIR 389).

The latest ruling, in Grant & Another v Baker, ordered postponement of sale of the property due to the bankrupt having a disabled adult child living at home. However, the bankrupt had initially sought for an indefinite postponement (until the child no longer resided at the property) and this was reduced by the judge to just one year. The judge accepted that there were ‘exceptional circumstances’ but he believed any longer postponement would go against the “underlying purpose of the bankruptcy code”. He went on to say “In all save the most truly exceptional circumstances, that purpose must require realisation within a much shorter time frame, normally to be measured in months rather than years.

This case underlines the point that ‘exceptional circumstances’ can be a difficult argument to make when trying to obstruct the sale of a home in bankruptcy proceedings. Even where the court believes that ‘exceptional circumstances’ exist, it may still not be willing to grant indefinite postponement as it goes against the underlying principles of bankruptcy.

The full judgment can be found here.