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The Significance of Bankruptcy Searches in Conveyancing

Conveyancing is the act of transferring the legal title of property from the current owner to another. Conveyancing also involves transfer of equitable interests or creation of easements in a property. Conveyancing Process usually involves huge sums of money, which most people may not have readily available. Usually a mortgage is the first choice for the potential buyer. Availing a mortgage is not a  very complicated process, however it involves the potential lender running a series of searches and background checks on the applicants and on the property mortgaged. One such search is the bankruptcy search. Usually the buyer’s conveyancer applies for it and the result is reported back to the Lender.

It is common to confuse bankruptcy  with insolvency. While Insolvency is a broad term used for any legal person, whether they are in individual or a body corporate, who is unable to pay off their debts. It is an umbrella term used to  describe all kinds of financial failure. Bankruptcy on the other hand, applies to only an individual and not a corporate entity. Any individual could be declared bankrupt if they owe more than £5,000 to any creditor once a creditor’s petition is filed by the creditor or a debtor’s petition by the individual himself.  Once a bankruptcy order is in place, no creditors may contact the individual personally for repayment but rather, the trustee or receiver so appointed for the purpose.

Why is a bankruptcy search conducted?

The bankruptcy search is conducted to know whether the person who has applied for the mortgage or the purchaser, is bankrupt or on the verge of bankruptcy. It is done exclusively for the lender. Once the buyer is found to be bankrupt for a given period of time, the lender may decline to provide the loan. In simple words, a bankruptcy search is conducted by the buyer’s solicitor to prove that the buyer is free from bankruptcy.

The issue of bankruptcy does not if the purchase is a cash purchase and there is no mortgage involved. Bankruptcy search results are mandatory for Lenders who provide loan for the purchase. Even if you have been a bankrupt in the past or are on the verge of bankruptcy, you can move forward with the process of conveyancing as long as you arrange the whole money in cash.

The bankruptcy searches can be moved forward in two ways. They are

  • Bankruptcy only search
  • Official search

Bankruptcy only searches

Bankruptcy Only searches will check if the buyer was ever declared bankrupt within a span of 5 years prior to the sales. You can either make a search on a company or on individuals. You can also get copies of the bankruptcy orders or of the applications for registration.

Official search

An official search is different from a bankruptcy only search. It is conducted for a given period of time. The search will be conducted for any span of years; it need not necessarily be the last 5 years. These searches can be conducted for any requested time period and in any part of the territory. This will help trace if the individual or company has received an order of bankruptcy any time in their life or within a stipulated time period. Generally, it is conducted for a specified period only.

If you want to know if the buyer has been bankrupt in the recent past, you can use the bankruptcy only search whereas, if you require information on distant past, official search is the one to choose.

Limited companies

When it comes to limited companies, you can even get a detailed report on the insolvency of the company from the date of its commencement. Generally, for a company, a bankruptcy only search is required. If the mortgage companies insist on an official search, the buyer’s solicitors will do it on the buyer’s behalf.

How to do bankruptcy searches?

The best way to approach bankruptcy search is to let your conveyancing solicitor do it. Your lawyer will charge you for the fees incurred on third-party searches and the lawyer fees, but this will protect you from making costly mistakes.

Also read:
What are Local Authority Searches?
Why is a priority search essential in conveyancing?

Photo courtesy: Brewbooks

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