The affect on your house or flat is one of the biggest concerns about Bankruptcy. Your property is not automatically at risk but you need to understand the implications.
Included in this article:
- Can you remain in your house after you go bankrupt?
- What happens if there is no equity?
- What if there is equity in the property?
- How to buy back your financial interest
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The information in this article is relevant regardless if whether you own a house or flat. It also applies to jointly owned and shared ownership property.
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
Can you remain in your house after you go bankrupt?
As a home owner if you go bankrupt your house is not immediately be sold from under you. The fact is it may never have to be sold. You can certainly remain living there initially as long as you keep paying the mortgage.
That said your financial interest in the property (known as your Beneficial Interest) is automatically transferred to the Official Receiver (OR). The value of this interest is equivalent to the value of your share of any equity.
The OR will review the value of the property and the outstanding mortgage or secured loans to determine what your equity is currently worth. They will then make a decision on what action needs to be taken and in what time scales.
If you do not pay your mortgage after you go bankrupt your property will be repossessed. Any mortgage shortfall debt left after the sale is then included in your bankruptcy.
What happens to your house if there is no equity?
If there is no equity in your house, your financial interest is worth nothing. As such the OR will not take any immediate action. Nevertheless the interest remains with them for up to the next 3 years managed by the Insolvency Service Long Term Assets Distribution Team (LTADT).
Normally two years and three months after the date of your bankruptcy the LTADT will contact you. They will ask you to provide an up to date valuation and mortgage statement.
If the value of your share of the equity at that time is less than £1000 the Beneficial Interest is returned to you free of charge and no further action is taken. Where it is more than £1000 but less than £10,000 a charge may be issued for the same amount. If more than £10,000, forced sale proceedings may start if you cannot raise funds in any other way.
After 2 years an 3 months the action taken regarding your house will depend on the value of any equity at that time.
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 if there is equity in your Property?
If there is equity in your property the type of action taken by the OR depends on the value of your share. Where it is less than £10,000 they will generally take no immediate action.
However after 2 years and 3 months the Insolvency Service will review the equity. If it is still less than £10,000 they are likely to issue a charge for the same amount. If more, an equivalent sum will have to be raised or the property is at risk of being force sold.
In circumstances where your equity is greater than £10,000 the management of your case will be passed to a Trustee. The Trustee generally takes no action for 12 months. After this you will have to make a reasonable offer to buy back your financial interest in your property. Where it is not possible for you to do this they are likely to start proceedings to force you to sell.
If your property is jointly owned the OR must still act to release your share of the equity. If it were to come to it the other party cannot prevent the forced sale of the property.
How to buy back your Financial Interest in your house
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 / Trustee. Again if you have not yet been discharged this must come from a third party.
It is in your interest to buy back your financial interest as quickly as possible. You then protect yourself against further house price increases and increases in the value of your equity as a result.
Want more advice about whether your home will be at risk if you go bankrupt? Give us a call (0800 077 6180) or complete the form below.
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