Insolvency is becoming more common. Official figures indicate that personal insolvencies – bankruptcy orders, debt relief orders and individual voluntary arrangements – rose from approximately 8,000 in 2002 to approximately 35,000 in 2010.
A bankrupt person’s assets are controlled by a trustee in bankruptcy. As a result, the bankrupt may be unable to sell his assets or access his bank accounts. Instead, the trustee settles the debts and liabilities of the bankrupt person at the date of bankruptcy from his assets on a pro rata basis. But what happens if a tenant becomes insolvent and is (or has already been) unable to pay his rent? This could lead to the landlord seeking possession on the grounds of rent arrears. The problem for the landlord is that one cannot claim against a bankrupt for money – that is part of what bankruptcy means. Can a landlord evict the tenant in these circumstances, and can he jump the queue for rent arrears?
Recently the Court of Appeal considered a case which involved assured tenants who were in rent arrears. The landlord brought eviction proceedings, with the aim of forcing the tenant to pay the rent arrears. Was this a remedy for the debt (not allowed as the tenant was bankrupt) or not? The court decided that an order for possession of property subject to a tenancy agreement, including an assured tenancy, due to the tenant’s rent arrears is not a “remedy”.
However, the court also ruled that the landlord could not have a court order for the rent arrears.
In conclusion an insolvent residential tenant may have some protection but at the court’s discretion. However, he should beware that a court will not be deterred from making a possession order where appropriate. Nevertheless the terms of such an order will be considered very carefully and it may still be very difficult for a creditor to recover rent arrears which have accrued prior to the date of the bankruptcy order.
Prompt action is usually cheaper and often leads to a much more satisfactory outcome than hoping things will improve on their own.
If you have any concerns about the issues raised please telephone our specialist Landlord and Tenant solicitors in Barnstaple on 01271 372128 or in Taunton on 01823 354545.