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What to do when your builder goes bust

Some advice on what you can do when your builder or contracting company files for bankruptcy.

3 min read

One of the worst situations for a homeowner to face is the news that their builder has filed for bankruptcy.

If you’ve been caught in this unfortunate situation, you might be wondering what your options are. For those with the proper insurance in place or a favourable payment plan, the consequences of this can be minimised. However, if you’ve been caught out unprotected, it can be a challenge to mitigate the fallout.

Here’s everything you need to know in regards to builders and insolvency.

Can I get the money I paid upfront back?

If you have paid a large lump sum to your builder upfront, it can be a challenge to get this investment back. This is why many in the industry advise paying for builders in increments and to be cautious about substantial deposits.

You may find repayment a struggle as you’ll be classed as an ‘unsecure creditor’, therefore placing you at the back of the queue when it comes to the money paid out during liquidation.

However, to be in with a chance of getting any money back, you will need to submit a ‘Proof of Debt’ form during the insolvency process. The appointed practitioner will then be in touch if any money has been recovered.

Have you paid for the work with a credit card?

If you made a payment using a credit card, you may be able to make a ‘Section 75’ claim.

Credit card users have some protection for purchases that cost between £100 - £30,000. If your builder hasn’t delivered what you paid for, it’s worth writing to your provider to see if they’re able to step in to cover the costs.

Hiring another contractor to finish the build

If you used a payment plan that released funds once specific stages were completed, you may find you still have the money available to hire another contractor to see your project to the finish line.

In order to hire another contractor, you’ll need to get your paperwork sorted. This should include test and completion certificates, drain test results, installation drawings for wiring, etc.

If you owe money to the builder undergoing bankruptcy, you may have to pay them what is due in order to get your hands on these key documents.

Protecting yourself going forward

To protect yourself going forward, it’s worth getting your project covered by Developer Insolvency Insurance. Ask the builder if they provide this, and if not, you can take it out yourself.

Setting up the right payment plan is another way of protecting your project. Remember: never pay upfront for a builder’s services. A good contractor will have the funds to upfront the costs of the project, and get that money back when work has been completed.

Other tips to consider…

  • Always ask for at least three references from any company you might be considering.
  • See these references and talk to the homeowners away from the contractor.
  • Make sure you see previous work that was both completed recently and one that has been around for at least a year.
  • For larger projects, consider having a professional, such as a project manager, help you put together your contract and arrange your payment plan.

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