When Your Builder Goes Bankrupt Before Job is Complete

It's the stuff of your nightmares. You've decided to have some building work done, perhaps that new conservatory or extension you've been wanting for ages. You find your builder, agree on the price and the work starts. Until one day when nobody turns up. They won't answer the phones. Then you realise they have 'gone bankrupt'. What can you do?

Insurance Backed Guarantees

Firstly, if your construction firm or builder is a member of a professional trade association, you may be able to breathe a sigh of relief. Most associations supply lists of registered builders who can offer an insurance backed guarantee of the quality of the work, and some schemes, such as the guarantee provided by the Guild of Master Craftsmen also have an optional insurance that covers the builder should they go out of business before they complete your project. This gives you peace of mind knowing that the cost of getting a builder in to complete the job is covered and you won't be out of pocket. Always check if the construction firm or builder has an insurance backed guarantee before employing them - it can be more expensive but could save money in the long run.

Was the Builder a Sole Trader?

Your options when faced with a bankrupt (or insolvent) builder will depend on their legal status. If you are employing a sole trader to do the work and he files for personal bankruptcy, all you can do is apply to the official receiver handling the bankruptcy petition to be added to the list of creditors. Details will be published in the local press if any individual files for bankruptcy...and contact details will also be published. As insolvency is considered public information, you can call the county court where the order was/is to be made, or the official receiver, and they will be able to tell you if a petition has been filed and a bankruptcy order made.

You can only claim for any deposit you've paid minus any work/materials paid from that deposit. The official receiver will be able to give you advice on how to be added to the creditor's list. This means that the debt owed to you will be taken into consideration when the official receiver administers the builder's financial affairs but doesn't guarantee that you will see any payment. Unfortunately, all you can do is ask another builder to quote to complete the work and start over.

Was the Builder a Limited Company?

Even if the company is just one person, it can still be a limited company rather than a sole trader. Check the company status online for free at Companies House. If they are limited, there is a possibility that they may not be bankrupt, but they may have gone into administration, which is when a company calls in accountants or 'administrators' to attempt to salvage the business. If this has happened, there's no reason why your job shouldn't be completed - the aim of administration is to keep the company going if possible. Keep in touch with them and make a note of the administrator's contact details. It's possible that the company is in such bad financial shape that they will become insolvent, in which case you will have to apply to be added to the list of creditors as for a sole trader.

Again, all you can do is get in another builder and start again.

Did You Pay the Deposit by Credit Card?

If you paid a deposit of between £100 and £30,000 on a credit card (not a debit card) you could try calling on the Section 75 of the Consumer Credit Act which gives the credit provider equal liability in law for a breach of contract. If the builder goes out of business - you can claim the deposit and any out of pocket expenses back from the finance company.

You may also be covered if you have a linked finance agreement - credit supplied for a conservatory that was arranged by the building company for example. You wouldn't be covered if you took out a separate loan from your bank though, it has to be specifically linked to the contract for the building work, not a separate credit agreement.

You need to contact the finance company directly and say you are claiming under section 75 of the Consumer Credit Act 1974. If the finance company tries to tell you that they will put a claim in to the administrators, point out that you know your rights, and you are entitled to compensation for the deposit and any out of pocket expenses from them, without waiting for any insolvency administrator's decision.