The Melancholy Consequences of Debt

One of the most difficult and frustrating situations a family lawyer can have to deal with is when their client faces losing their home due to the bankruptcy of the client's partner. A useful reminder of the problems involved was reported recently in the case of Donohoe v Ingram [2006] EWHC 282 (Ch). In this case Ms Donohoe and her partner Mr Kirkup purchased a property together in 1996. The relationship broke down and Mr Kirkup moved out, leaving Ms Donohoe in the property with their four children. On the 21st March 2000 Mr Kirkup was made bankrupt and on the 7th May 2004 Mr Ingram was appointed as Mr Kirkup's trustee in bankruptcy. On the 7th June 2005 Mr Ingram applied to the court for an order that the property be sold so that Mr Kirkup's share could be used to pay his creditors. At a hearing on the 18th October 2005 an order for sale was duly made, and Ms Donohoe appealed, asking for the order for sale to be postponed until the youngest child attained the age of sixteen.

Section 335A of the Insolvency Act 1986 specifically states that on any such application for an order for sale the court is to have regard to (inter alia) the needs of any children. However, it goes on to state that where (as here) one year has elapsed since the bankrupt's property vested in the trustee then "the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt's creditors outweigh all other considerations". Ms Donohoe tried to get round this by claiming that the circumstances were exceptional because it was highly unlikely that postponement of payment of the debt would cause any great hardship to the creditors, relying on the decision in In Re Holliday [1981] Ch 405. However, she failed in this submission, as the appeal judge, Mr Stuart Isaacs QC, distinguished this case from In Re Holliday, which in any event Mr Isaacs said "needs to be approached with a degree of caution".

So, yet another depressing case of a family losing their home due to the bankruptcy of a long-gone partner. Naturally clients often find this hard to accept and understand. Perhaps the best explanation came from Lord Justice Nourse in the case of In Re Citro [1991] Ch 142 when he said that "such circumstances, while engendering a natural sympathy in all who hear of them ... are the melancholy consequences of debt and improvidence with which every civilised society has been familiar".