The affect on your house is one of the biggest concerns about Bankruptcy. In reality property is not automatically at risk. However you do need to understand the implications.
- What happens to your House if there is no equity?
- What if there is equity in the property?
- How to buy back Beneficial Interest from the OR
- Bankruptcy and jointly owned Property
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Do I keep a paying my mortgage if I go Bankrupt?
Mortgage debt is not included in Bankruptcy Do you continue making your monthly mortgage payments? Are there other implications of Bankruptcy for home owners? To find out more please visit: http://beatmydebt.com/bankruptcy-frequently-asked-questions/what-happens-to-my-house-in-bankruptcy
What happens to your House if there is no equity in it?
As a home owner your share of any equity in the property is known as your Beneficial Interest. This is automatically transferred to the Official Receiver (OR) after you go Bankrupt. This will happen whether there is equity in the property or not.
If there is no equity your Beneficial Interest is currently worth nothing. As such the OR will not take any immediate action. Nevertheless they will remain in control of it for 3 years.
After 3 years if the property has increased in value then depending on the amount of equity they may place a charge against the property for the value of your share. Alternatively they may or demand that it is released by forced sale if you cannot raise funds in any other way.
After 2 years and 3 months the Receiver will re-assess the value of your home. At that time if the value of your share of any equity is less than £1000 your Beneficial Interest is returned to you free of charge.
What happens to my house in Bankruptcy if there is no equity?
If there is no equity your house is not normally at risk if you go Bankrupt. Will the Official receiver still want me to sell my property? Is it sensible to buy back the beneficial interest straight away? To find out more please visit: http://beatmydebt.com/bankruptcy-frequently-asked-questions/what-happens-to-my-house-in-bankruptcy
What happens if there is equity in your Property?
If there is equity in your property the Official Receiver must act to release this for the benefit of your creditors. The type of action they will take will depend on the value of the equity.
Given the amount is minimal (as a rule of thumb up to £10,000) the OR will not normally take any action for three years. After this time if it has not changed they will normally issue a charge against your property for the same sum. The Beneficial Interest is then returned to you. Any future increases are yours to keep.
Where the equity in your property is more significant the OR will have to act to release this. They will first invite you to pay them the equivalent of your share either by remortgaging or borrowing from elsewhere. If you are unable to do this they may then start proceedings to force you to sell.
When you live with other family members you can still be forced to sell your home to release your share of the equity. However if it unlikely the Official Receiver will start such action for at least 12 months.
How to buy back Beneficial Interest from the Official Receiver
It is possible to buy back the beneficial interest in your property at any time after you go bankrupt. Your options for doing this will depend on how much equity is in your property.
Negative or Zero Equity
If your property has zero equity or is in negative equity your beneficial interest can be bought back from the Official Receiver for £1000 plus the solicitor’s costs. If you are still bankrupt this money must come from a third party.
Where there is equity in your property an amount equal to your share of this or £1000 (which ever is the greater) must be paid to the Official Receiver. Again if you have not yet been discharged this must come from a third party.
If you want to buy back the Beneficial Interest in your property you must ensure you speak to the OR about it yourself. It is unlikely they will bring it up at the time you go bankrupt.
How does Bankruptcy affect a jointly owned property?
If your home is jointly owned then only your share of any equity is at risk if you go bankrupt. However despite the joint ownership the OR will still have to realise your share.
Where the joint owner or another third party is able to raise an equivalent lump sum this can be paid to the OR. In return the beneficial interest is returned to you and the risk to the property goes away.
However if such a sum cannot be raised the OR will have to take action to release it. This could be in the form of issuing a Charge or forcing a sale.
The OR must act regardless of the other owner’s wishes. When the property is sold the joint owner will be given their share of any equity released. However they will not be able to stop the sale process other than by coming up with the funds to buy out the OR’s share themselves.
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