When Your Builder Goes Bankrupt Before Job Is Complete

When the Builder Disappears

It is one of the more stressful situations a homeowner can face. You have agreed a price for an extension, loft conversion or new kitchen, paid a deposit, perhaps even staged payments, and then the work stops. Calls go unanswered. Eventually you hear the firm has gone bust. The site is half finished, materials may have been delivered but not fitted, and you are left wondering whether your money is gone and how to get the job completed.

The good news is that there are usually some practical steps you can take, and in certain cases you may recover at least part of what you have paid. What you can do depends on how the builder traded, how you paid, and whether any guarantee or warranty was in place.

Insurance Backed Guarantees and Trade Body Schemes

If your builder belonged to a recognised trade association, check the terms of any membership scheme straight away. Bodies such as the Federation of Master Builders, TrustMark, the Guild of Master Craftsmen and the various Competent Person Schemes often require or offer insurance backed guarantees (IBGs). An IBG is a separate insurance policy that may cover the cost of completing the work, or putting right defects, if the original contractor goes out of business.

Two points worth checking:

• The IBG usually only kicks in once the work is finished, so a job abandoned partway through may not be covered in the same way as a defect after completion. Read the policy wording carefully.
• Some trade bodies also run deposit protection or staged payment protection schemes, which can be more useful when a builder fails mid-project.

Before you hire anyone, asking for written confirmation of which scheme covers your job, and getting a copy of the policy document, is one of the simplest ways to reduce the risk. It can cost more up front, but in most cases works out cheaper than dealing with the fallout of a failed firm. Our guide to cowboy builders covers what to look for when vetting a contractor.

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Sole Trader or Limited Company?

Your options depend heavily on the legal status of the business.

Sole traders trade in their own name. If they cannot pay their debts, they may enter personal bankruptcy or, more commonly now, a Debt Relief Order or Individual Voluntary Arrangement. You become an unsecured creditor and may register a claim with the appointed trustee or insolvency practitioner. In practice, unsecured creditors often receive only a small percentage of what they are owed, sometimes nothing.

Limited companies are separate legal entities. If the company is wound up, liquidated or enters administration, you again rank as an unsecured creditor and claim through the liquidator or administrator. The directors are not personally liable for the company's debts in most cases, unless there has been fraud or wrongful trading.

You can check the current status of a limited company free of charge on the Companies House website. Insolvency notices are also published in the London Gazette. Citizens Advice can help you understand the process and how to submit a proof of debt.

How You Paid Matters

How the money left your account can make a real difference to recovery.

• Credit card payments over £100. Under Section 75 of the Consumer Credit Act 1974, the card issuer is jointly liable with the trader for breach of contract or misrepresentation, as long as the cash price of the item or service was more than £100 and not more than £30,000. If you paid even a deposit on a credit card, the whole contract value can be claimed against the lender. This is often a strong route when a builder folds, though success depends on the facts of your case and the issuer may dispute liability.
• Debit cards, prepaid cards and some e-money. Section 75 does not apply, but you may be able to use chargeback under the Visa, Mastercard or Amex scheme rules. Chargeback is not a legal right but a scheme rule, and there are time limits, often 120 days from the expected service date. Contact your bank as soon as you know there is a problem.
• Bank transfer, cash or cheque. Recovery is much harder. You can still register as a creditor in any insolvency, but there is no card scheme to fall back on. If you were tricked into transferring money, the Contingent Reimbursement Model and the newer mandatory APP fraud reimbursement rules may help in cases of authorised push payment fraud. Report the matter to your bank and to Action Fraud.

Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.

Your Rights Under the Consumer Rights Act 2015

Building work for a homeowner is a contract for services. Under the Consumer Rights Act 2015, services should be carried out with reasonable care and skill, within a reasonable time, and for a reasonable price if no price was agreed. Where the trader has failed to do this, you usually have rights to a repeat performance or a price reduction.

The practical problem when a builder is insolvent is that these rights exist against a business that no longer has the means to honour them. Your claim becomes part of the insolvency rather than something you can pursue through the small claims process in the usual way. That said, the Act is still relevant if you need to argue that money paid up front was not matched by work of the agreed standard.

If the contract was agreed in your home rather than at the builder's business premises, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 normally give a 14 day cancellation period. The trader should have given you written notice of this right. If they did not, the cancellation period can extend considerably. This is mainly useful if the firm fails very early on, before work has properly started.

Practical Steps to Take Now

• Gather all paperwork: the quote, contract, emails, invoices, receipts and bank or card statements.
• Photograph the state of the work and list any materials on site that you have paid for.
• Check Companies House or contact the Insolvency Service to find the appointed insolvency practitioner, and submit a proof of debt.
• Contact your card issuer about Section 75 or chargeback within their time limits.
• Tell your home insurer if partly completed work could cause damage, for example an open roof.
• Get written quotes from two or three other builders to complete the job, so you have evidence of your losses.
• Seek advice from Citizens Advice or check GOV.UK for current procedures, time limits and any reimbursement schemes.

Recovering money from an insolvent builder is rarely quick and often only partial. Outcomes vary depending on your circumstances, but acting promptly, keeping good records and using the protection of your payment method where you can are usually the most effective ways to limit the damage.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Bad Builder Action Plan lets you get a step-by-step plan to deal with a cowboy builder. Takes 2 minutes. Try it now →