What happens if the Buyer goes bankrupt during a Purchase?

A conveyancer will only know whether his client is solvent or not when they carry out a bankruptcy search, as part of the conveyancing process. A bankruptcy search is carried out just prior to exchange of contracts, to ensure the buyer is not bankrupt.

If the buyer is found to be bankrupt then the buyer should be informed by his conveyancer of this and advised that the transaction cannot go ahead. If contracts have already been exchanged then the benefit of the contract will pass to the 'trustee in bankruptcy' who may complete the transaction subject to his right to disclaim any onerous contracts.

Lender

Where a lender is involved they may carry out a bankruptcy search and find out themselves that the borrower has become bankrupt, in which case, if a mortgage offer has been made it will be revoked by the bankruptcy and there will obviously be no available funds to go ahead with the purchase.   If the matter has not proceeded to an exchange of contracts then the buyer can simply withdraw from the purchase conveyancing process.

Co-Purchaser

Where there is more than one purchaser, the bankrupt’s equitable interest will pass to his trustee. The remaining buyer may have difficulty completing since a joint mortgage may have been taken out with the bankrupt party.

Multiple entries under the same name

In practice, if a bankruptcy search reveals an adverse entry, the conveyancer or solicitor should seek to establish immediately whether or not it relates to the buyer. Some common names,  may show multiple entries. If the conveyancer is satisfied that the adverse entry does not relate to his client then he can certify the bankruptcy search result. If there is any doubt over this, the lender’s instructions should be taken. If a lender is involved, it is a  requirement of the lender that a clear bankruptcy search is obtained for each borrower.