What happens to my House if I go Bankrupt?

What happens to your house in Bankruptcy How your house is affected one of the biggest concerns about Bankruptcy. In reality it 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?
  • Buying 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 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.

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 to buy them out.

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 then 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.

If the level of equity 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 amount. The Beneficial Interest is then returned to you. Any future increases are yours to keep.

If the OR issues a Charge against your house you can pay this debt at any time. You could even wait until you decide to sell. However interest will normally be be added at the rate of 8% per year. It is therefore sensible to pay it as soon as you can.

If at the time you go Bankrupt (or anytime during the following 3 years) the equity in your property is a larger amount the OR will want to release this. They will first invite you to raise an equivalent sum from a 3rd party or by remortgaging. If you are unable to do this they could still issue a charge for the equivalent sum. However they are more likely to start proceedings to try and force you to sell.

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.

Property in negative equity
If your property 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.

Property with equity
Where there is equity in your property an amount equal to your share of the equity or £1000 (which ever is the greater) must be paid to the Official Receiver. If you are still bankrupt this must normally 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 particularly if there is little or no equity in your home.

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 the other joint owner may also be affected. If there is equity in the property then the OR will still have to realise your share of this.

If 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 then passed to the person who came up with the money. The risk to the property then goes away.

However if a sum equivalent to your share of the equity cannot be raised the OR will have to take action to release it. This could be in the form of issuing a Charge or start the process of 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.

What happens to a jointly owned property if one partner goes Bankrupt?

Your share of the equity in a jointly owned property will be at risk if you go Bankrupt. Can your partner buy back your equity from the Official Receiver? What if they do not have the funds to do this? To find out more please visit: http://beatmydebt.com/bankruptcy-frequently-asked-questions/what-happens-to-my-house-in-bankruptcy

After Bankruptcy will I lose my house if my family live there?

If there is significant equity in your property and you are unable to raise the funds to buy back your interest the official receiver will be forced to sell the property. It does not matter whether other people live with you or that you have dependants.

If you have dependants living with you it may be possible to get the receiver to delay selling your home for up to 3 years to allow you to find alternative accommodation. However unless there are exceptional circumstances your home is still likely to be sold after this time.

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2 thoughts on “What happens to my House if I go Bankrupt?

  1. Stewart says:

    Hi I am just trying to find an answer to the question of what would happen to my rental properties in the event of my bankruptcy. There are 4 in negative equity and I really want to see the back of them. Can the mortgage companies chase for outstanding equity difference for 12 years? I also live in a rented property.

    1. Hi Stewart

      If you have investment properties that you rent out but they are in negative equity and you just want to be rid of them Bankruptcy may well be a sensible option for you.

      You would first need to stop paying the mortgage payments and inform the lenders that you want them to repossess the properties. If any are currently tenanted you might also want to inform the tenants so they can plan to make alternative arrangements.

      You can then declare yourself bankrupt at any time (you do not have to wait until the properties are sold which could drag on for months).

      Any shortfalls on any of the mortgages which appear when the lenders eventually sell are known as contingent debts. They are written off by your original bankruptcy because the potential for them already existed on the date you went bankrupt. The lenders are not allowed to chase you for these debts at all.

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