4.3 Property Ownership, Insolvency and Bankruptcy

Property, debt and bankruptcy cut across many advice conversations — from mortgage suitability to the protection of jointly held assets. This section explains how ownership can be structured, how UK property law treats mortgaged land, and how formal insolvency procedures reshape a client's financial life.

Forms of Property Ownership

Sole Ownership

Sole ownership is the simplest form: one legal owner holds the entire beneficial interest. On death, the property forms part of the owner's estate and passes under their will or the intestacy rules.

Joint Tenants

Where two or more people own as joint tenants, each owns the whole property together and no one has a distinct share.

• Right of survivorship — on the death of one joint tenant, the property passes automatically to the surviving owner(s) regardless of the will.
• The property does not pass through probate for that joint owner.
• Common for spouses and civil partners on the family home.

Tenants in Common

Where owners hold as tenants in common, each has a distinct, separable share (which need not be equal — for example 60/40).

• No right of survivorship. On death, the deceased's share passes under their will or intestacy.
• The share is an asset of the estate and goes through probate.
• Common for unmarried co-owners, business partners, and inheritance tax planning (especially where owners wish to direct their share via a will).

A joint tenancy can be severed unilaterally by one owner giving written notice to the others, converting the holding into tenants in common. This is often done as part of estate planning.

UK Property Law for Mortgages

A mortgage in England & Wales is a charge over land securing repayment of a debt. The mortgagor (borrower) retains legal title; the mortgagee (lender) holds an equitable interest enforceable on default.

Key features:

• Legal charge — the modern form under the Law of Property Act 1925, replacing the old "title by conveyance" mortgage.
• Repayment — typically capital-plus-interest over a set term (often 25 years).
• Lender's remedies on default include possession, sale, and appointment of a receiver.
• Equity of redemption — the borrower's right to redeem the property on repayment of the secured debt. Clogs on the equity of redemption are void.

The Financial Conduct Authority's MCOB sourcebook governs mortgage conduct of business: pre-disclosure, suitability, responsible lending, and post-sale disclosure.

Insolvency Solutions

Three statutory routes exist for individuals unable to pay their debts in full.

Individual Voluntary Arrangement (IVA)

An IVA is a formal, legally binding agreement between a debtor and creditors, supervised by a licensed insolvency practitioner (IP).

• Usually lasts five years.
• Combines debts into affordable monthly payments, often with a portion written off at the end.
• Requires creditor approval at a meeting (75% by value of voting creditors).
• Protects the home from sale in many cases (although equity may need to be released in later years).
• Recorded on the Individual Insolvency Register; affects credit file for six years.

Debt Relief Order (DRO)

A DRO is a low-cost alternative to bankruptcy introduced in 2004 and updated in 2024.

Eligibility (current limits):

• Debts and assets within statutory ceilings (the debt ceiling was raised in 2024; candidates should confirm the latest figure at the exam date).
• Disposable income no more than £75 per month.
• The debtor must not own a home.
• The debtor must have lived, worked, or carried on business in England & Wales within the previous three years.

A DRO runs for 12 months, after which the included debts are written off. It is granted by the Official Receiver rather than a court.

Bankruptcy

Bankruptcy is a court-based process (or by debtor's petition via the online route) that writes off most unsecured debts.

• Order made by the court on a debtor's petition or a creditor's petition (debt ≥ £5,000).
• Estate vests in a trustee in bankruptcy who realises assets, including the home if there is equity.
• Certain assets are protected: tools of trade, ordinary household goods, and a portion of income needed for reasonable domestic needs.
• The bankrupt's estate includes assets at the date of the order, plus "after-acquired" property before discharge, plus income payments if surplus income is available.

Bankruptcy Discharge

The standard discharge period is one year from the date of the bankruptcy order. After discharge:

• Most remaining debts are written off.
• The bankrupt is released from most restrictions.
• The trustee in bankruptcy may continue to realise assets that vested (including, in some cases, the family home, which can be sold within three years of the order without further court approval).

Effects on Credit and Access to Financial Services

A bankruptcy, DRO or IVA has serious credit and access consequences:

Financial advisers should advise clients that disclosure to lenders is usually required until the entry drops off the credit file, and that "credit repair" products should be treated with caution.