What happens to my House if I go Bankrupt?

What happens to my House if I go Bankrupt?

The affect on your house is one of the biggest concerns about Bankruptcy. A property is not automatically at risk but you need to understand the implications.

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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. 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 often 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 than £10,000 the OR will have to act. Normally they will pass the management of your case to a Trustee. The Trustee will first invite you to pay 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 a Trustee can only start such action 12 months after your bankruptcy start date.

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.

Positive Equity
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.

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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30 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.

  2. Lorraine says:

    Hi I am in a shared ownership property and my Iva may fail. If the creditors decide to make me bankrupt how long will it be before I have to sell my property and if I’m paying back my creditors back through the court how will I get funds to put property on the market or will this be taken out by mortgage company once sold. I am not behind with mortgage payments or rent.

    1. Hi Lorraine

      It is important to understand that if your IVA fails it is actually very unlikely your creditors will make you bankrupt. That said if they did your house would not be automatically at risk. This would only be the case if you have significant equity in it.

      To calculate the current equity you need to take the current value of the property as a whole and then see what your share is worth. In other words if the total market value is currently £300k and your share is 50% your share is worth £150k. Then you need to deduct your outstanding mortgage from the value of your share. So using the above example if your mortgage is £140k then your equity in the property is £10k (£150k less £140k).

      As highlighted in the article above where your share of any equity is less than £10k the official receiver will normally not take any action for 3 years. You can continue living in the property as long as you continue paying the rent and your mortgage.

      At the end of 3 years if your equity is zero or negative your interest in the property will simply be returned to you and that is that. If the equity at that time is £10k or less the most likely outcome is that the OR will put a charge against your property for that amount. This would then only be paid when you chose to sell.

      You would only ever be forced to sell if your share of the equity is a significant sum (normally £10k or more) and you cannot come up with this amount in any other way.

  3. Skip says:

    My bankruptcy officially ends tomorrow but I have to pay the OR an amount for my share of the house. The annoying thing is they have doubled what they want? We agreed to £45k. They now say they have had to do more work and its now £61k? Any thoughts?

    1. Hi Skip

      The amount of money you need to raise to buy back your interest in your property from the OR is based simply on your share of any equity currently in the property. The rule is that the calculation of equity must be based on an up to date valuation (i.e. one carried out in the last 3 months). It has nothing to do with the amount of work that the OR has or has not done.

      As such if you have a recent valuation and a mortgage statement showing that your share of the equity is currently £45k the OR would be bound to accept this amount as a reasonable offer. They cannot demand any more unless they believe your calculation is wrong.

      Perhaps the reason the OR is demanding £61k is that they have now valued the property higher than your initial estimate. If this is the case you should get your own up to date valuation from an independent estate agent or valuer. Where this shows your share of the equity as still being £45k (or less) you can present this to the OR. If they believe the valuation is reasonable they will accept it.

  4. Ree says:

    Hi, I have been made bankrupt. My trustees are taking me to court to get a possession order to sale my property. It is a jointly owned property with me and my ex husband. I wanted to know if my son can purchase my property by getting a consessional mortgage. And my ex gifting his share of the equity.

    My share of equity will will be taken by trustees in how much they can anyway get from a normal sale. What is the possibility of this if presented in court. I have spoken to an advisor with debt help and he stated that it should be put forward. Because if property repossessed or sold by trustees they will receive a lot less.

    Thankyou

    1. Hi Ree

      At the end of the day the last thing a Trustee in bankruptcy wants to do is to force the sale of a property. This process is very costly and always releases less than if an amicable agreement to release equity in some other way can be reached.

      If your son is in a position to get a mortgage to buy the property from you thus raising the funds required to pay off the Trustees this is a deal that I am sure they would consider. They will have put a restriction on the property so it cannot be sold without their consent. However if they are involved with the process and have contact with your son’s solicitor to ensure they get their money then I cannot see there would be a problem.

      Have you discussed this option with them? What is their reaction?

  5. Lee says:

    Hi, I was just after some advice. I am currently being chased for some historic debts. It’s looking unlikely I’ll be able to pay these and have to declare bankrupt. I own a house with my partner but the split is 90% ownership in my partners name and 10% ownership in my name. There is a 90% mortgage on the property from the bank.

    I just wondered if I did have to declare bankruptcy, what happens with the house and mortgage going forward? Debt collectors can’t take the house as I don’t own it but will the bank withdraw the mortgage or will we still be able to pay it as normal?
    Thanks

    1. Hi Lee

      If you go bankrupt nothing will happen to your home initially. You are still liable to pay the mortgage and you and your partner must keep paying the payments as normal. If you do not do this the property will be at risk of repossession by the mortgage lender.

      The property is protected from your unsecured creditors. Under the rules of bankruptcy they can no longer take legal action against you.

      However – and this is very important – when you go bankrupt your interest in the property passes to the official receiver. The value of you interest is equal to the value of your share of the equity. If this amount is relatively low then it is likely that they will not take any immediate action. However they will need to realise this amount within 3 years.

      If the value of your interest is £1000 or less you can offer to buy it back from the OR at any time for the total of £1000 + their solicitor fees. However the longer you leave it the greater the possibility that house prices will rise and the amount you have to pay will be more.

  6. Darren says:

    I went bankrupt in 2009. As there was no equity in the house the OR sold my interest in the property to my wife for £1 plus there arrangement fee.

    I am debating weather to go bankrupt again due to bad business decisions has increased my debt. Does my wife still own all the equity or would I again have a 50% share

    1. Hi Darren

      This is an important question. When your wife bought your interest in the property from the Official Receiver this was based on the value of the property at that time. However if the property has continued to increase in value since then and it and any mortgage have remained in joint names it is entirely possible for you to have built up a new interest.

      As such if you go bankrupt again the OR will have to consider the new interest you might have built up. This is basically 50% of any new equity that has appeared due to rises in house prices or reduction in the mortgage since 2009. You would have to hand over this amount.

      The only way you could argue that all the new equity belongs 100% to your wife is if during the last 10 years you have not worked and she has maintained the mortgage payments from her income alone.

  7. Ross says:

    I am facing a bill from HMRC that I cannot pay and the likelihood is that I will face bankruptcy. I joint own my house with my wife and have approx. £70k equity. What will happen to our home, will they force us to sell to release my half of the equity, or can they even claim all of the equity? Is there any opportunity to keep our home by the OR taking beneficial interest, and is there a time limit for when we would have to buy that back?

    1. Hi Ross

      If you go bankrupt the official receiver only has a claim on your share of the equity in your property. In other words if you own it 50/50 then they will claim £35k. Your wife’s share is protected and hers to keep.

      Normally no action will be taken within the 1st year. However after that the Bankruptcy Trustee will need to raise your share of the equity. They would prefer if you or a third party could raise the necessary funds to pay them (this is known as buying back the interest in your property). However if this is not possible then as a last resort they could apply to the court to force you to sell.

      Note: It is always in your interest to buy back your interest in your property as soon as possible. The amount you will have to pay has to be based on the equity in the property based on a valuation taken within the last 3 months. As such if you wait a year from the date you go bankrupt and house prices rise in the mean time the amount you have to pay will go up.

  8. Anonymous says:

    I’m hoping I get some advice as nobody seems to be able to help be i.e. citizens advice, charity’s.

    I’m still married to my ex (since 2011) we are in the first stage of divorce. We still haven’t reached decree nisi yet but the judge has agreed to go with my petition for divorce. My husband got a mortgage for the home that me and the 3 children are in at the moment.

    In feb 2017 the house was brought via the right to acquire using my right as it was my housing association home for 9 approx years prior to the mortgage. He got the mortgage as it was advised as I had had no credit history and no income but put across to me as were married so it would be ok. (Me and my husband are not financially associated)
    My husband left the home unexpectedly a month later (march 2017).

    A week after he left I applied for marriage occupancy rights upon the home/house I was granted them. When we was talking I offered to pay the mortgage (completely desperate not too loose the home and become homeless, the children have been through enough. He refused as he didn’t want me to have any “claim” over the house) iv paid all the bills etc. just haven’t been able to pay the mortgage I’ve tried numerous times to do so with the lender but it was refused.

    I have had no contact at all either have the children with my husband since October 2017 and even before that it wasn’t much at all. I now found out that my husband had declared himself bankrupt (in April 2018). Also that the house is being repossessed and my husband is not going to fight it as he has gone bankrupt on purpose as he has the mentality “if I can’t have the house she can’t”.

    I found out by the trustee/insolvency dealing with his case that I have a right over the possible equity in the home. I have shown evidence to them as to why I am entitled to the home rights (something they requested). I’ve had 2 people asses what the house is worth and there is more than likely equity in the house approx. 40 thousand.

    I have a 3rd party (technically friend but family member really) who wants to buy out my husband and take on mortgage on the house. I need to try and get the house basically. I hope this all make sense and someone could help me.

    1. Hi there

      Unfortunately this is not an easy situation. Firstly if the mortgage has not been paid the lender is within their rights to apply to repossess the property. You could attend the hearing and try to argue that it is not in your interest for the property to be sold. As a spouse with children you definitely have an interest in it.

      If you or your friend can find some way of getting the mortgage payments up to date then perhaps the judge would ask the mortgage lender to let you stay. However that would not resolve the issue of the fact that your husband still technically owns it not you.

      I almost think that it might be better if the repossession is allowed. Then your friend could approach the lender directly and potentially arrange to buy the property from them. This might actually be the most sensible solution as it will be a distressed deal and the lender is likely to sell for a knock down price.

      From what you have said about the current equity I would agree that you do have a valid claim on 50% of this because you and your ex are /were married. However if the property is repossessed the mortgage lender will normally sell at a reduced price under the market value. As such the equity will be whittled down to nothing and you are very unlikely to get anything back at all.

  9. G says:

    Hello,

    I left the family home in 2011; my ex and our two children (aged 8 and 14) continue to live there. When we divorced, I signed the property into my ex’s name on the condition that she used her ‘best endeavours’ to have my interest released- she has spoken to the building soc once about a possible transfer of equity. She remarried in 2013, but my name remains on the mortgage which has been in and out of significant arrears over the past eight years. The frustrating thing is that I know they have money/credit as they take regular foreign holidays and own new cars. Meanwhile, I am stuck in rented accommodation with no prospect of being able to raise a new mortgage to carry on with my life.

    The building soc will not consider a transfer of equity into my ex’s husband’s name due to the arrears (currently at £3500- over 5 months of payments. Because there is considerable acrimony from my ex, she will not consider selling the property to allow us both a fresh start. From my understanding, there is a £195000 mortgage on the house, and it could be worth around £260K today.

    What are my options? I am considering declaring myself bankrupt if this will remove my name from the mortgage (I also have unsecured debts which I struggle to pay). Or, would a Court ever consider forcing the sale of the property given that our children still live there? (It sounds heartless, but if their house were to be sold then they can live with family who are all based locally).

    1. Hi G

      Sorry to hear about your situation. Harsh as it sounds you could use bankruptcy to deal with this issue. If you go bankrupt firstly you will no longer have to worry about the unsecured debts you are struggling to pay. These will be taken away from you.

      In addition you hand over the problem of your house to the Official Receiver. It will be down to them (or an appointed trustee) to release your share of the equity. The Trustee will write to your ex and ask them to make an offer to buy out your share. If they refuse or are unable to do this then the Trustee will get a court order to force the sale of the property.

      Your ex is very unlikely to be able to defend against the house being sold even though she has children. The court will side with the trustee in all but extreme circumstances). If it comes to it and the property is sold she will be given her share of the equity and can set up home elsewhere. Your share goes to the Trustee. If this were to happen you would then be free of the mortgage.

      The only time your name would not come off the mortgage is if your ex does somehow raises sufficient funds to buy back your interest from the Trustee without remortgaging the property. If this were to happen then your name would remain on the mortgage….. However in this scenario you would still be protected from any future liability for a mortgage shortfall if the house were to ever to be repossessed.

  10. P says:

    Hello,
    My wife and I bought our son’s flat to help him out of a tricky situation but unfortunately we have got ourselves into a situation as a result. We bought the flat with a buy-to-let 75% mortgage through our bank at quite a good price (130K).

    The issues we are facing (genuinely not appreciated by our son) are:

    > The double glazing may need to be updated and this would be expensive.
    > There is a water leak in the flat downstairs that is probably from our flat that started while the flat was vacant and in the process of being bought, and we had no liability insurance that started before we bought the place.

    These issue are making us nervous about letting the flat out which means loss of income. At the same time some costly repairs/updates to the flat may be needed.
    We can maintain the payments even without tenants but as a result cannot make much headway in saving to pay for said repairs/updates.

    I really would like to be rid of the flat even if it meant losing money given the stress it causes. Would appreciate advice on any strategy to ditch the flat.

    Prepared to consider surrendering the property to the bank or bankruptcy or some other option.

    We live in our own home which has quite a lot of equity (300K).

    Thanks for any advice that you can give.

    1. Hi

      Bankruptcy is not an option here. If you were to allow the property to be repossessed and then went bankrupt to try and deal with any mortgage shortfall your own home would be at risk. The official receiver could force you to sell that to release the equity to pay your debts.

      Given this I would suggest the best option would be put the flat on the market and sell. If the sale price is less than the outstanding mortgage you could then take a loan to cover the difference. As long as the monthly payments on this are no more than the current mortgage (which you say you can afford) this would seem to be the best way to draw a line under it.

  11. angela says:

    Hi I am wondering if anyone can help with how the buying of beneficial interest works. If my son buys my beneficial interest in a property can he arrange a payment plan over a year for example or does he need the cash up front? thank you

    1. Hi Angela

      Generally speaking it is not possible to set up a payment plan to buy back beneficial interest. When the time comes to negotiate the payment the official receiver or trustee will need the money pretty much up front. That said it may be possible to negotiate time to pay if the time scales are short. Perhaps a few months. However I do not think the Official Receiver or a Trustee would accept a payment plan that lasts a year.

  12. Nicole says:

    My husband and I although estranged still share the same house
    the mortgage is solely in my husbands name will the house be at risk if I go bankrupt
    all my debts are unsecured and in my name only

    1. Hi Nicole

      Given you are married (even though you are estranged) you need to think very carefully before you go bankrupt. The fact that the property is solely in your husband’s name does not matter.

      The issue is you are married and therefore you have marital claims on your husband’s assets. In these situations the Official Receiver will consider what interest in the house a Court would award you if you were to get divorced. As a starting point they would assume this to be 50%.

      I would be happy to discuss this with you if you want to give me a call (0800 077 6180).

  13. Sam says:

    My husband went bankrupt Oct 2016, we were separated and lived apart. We had a deed of trust dated November 2011 In my favour. The bankruptcy ends in October 2019, since the order he has moved back in the house. Is there anyway/reason that they would now go back on the order of £50 a month payments and take the house ??

    1. Hi Sam

      I do not think you have anything to worry about. If the Official Receiver agreed that your husband had no interest in your property when he went bankrupt then even though he has now moved back in this situation should not change.

      The official receiver only has a right to assets which he owed on the day he became bankrupt or that he gained during the year he was bankrupt. Given he was discharged after 12 months (in Oct 17) any assets that he now builds up are his to keep (even though he is paying an IPA).

      As such even if he were now to start paying the mortgage on your behalf and building up new interest in the property this is nothing to do with the Official Receiver and would be his to keep.

  14. Sarah says:

    I wonder if you give me some advice? Twelve years ago my husband and his sister purchased two properties in the North of England through a mortgage lender / investment company. One of the properties is in a small ex pit village near Durham and consequently has been uninhabited for at least five years. The property is boarded up and they do not have the money to bring it back into use.

    My sister in law is threatening to go bankrupt to release herself from this debt. However the other property is currently rented and her plan is to sell this (if possible) tenant in situ. My sister in law lives in a rented property but my husband and I own a house.

    My husband is looking to engage a negative equity specialist but because this involves a cost his sister is unwilling to engage and is using a company associated to her employer who has recommended bankruptcy as her way out (free legal advice). Where do we stand if she does go down this route? My husband has been advised that given he is working and we jointly own. A house with equity he is solvent and cannot go bankrupt himself

    1. Hi Sarah

      This is quite a complicated situation. Your husband will be affected if his sister goes bankrupt. Her financial interest in the two rental properties will pass to the Official Receiver. As such if and when they are eventually sold her share of any equity released will have to be paid to them.

      As it is jointly owned then far as I am aware your sister-in-law would be unable to sell the second property without your husbands agreement and signature. If she does go bankrupt then the official receiver (or Trustee) may not take any immediate action force its sale (this will depend on the level of equity in it). However if there is significant equity (or equity starts to grow in the future) then pressure might grow for your husband to sell unless he can find the cash to buy out the OR’s interest.

      As long as the mortgage on both properties continues to be paid there will be no risk of either of them being repossessed. However if repossession were to happen your sister would be protected from any subsequent shortfall by her bankruptcy. However your husband would remain liable for 100% of the shortfall figures.

      There are multiple issues and things to consider with this situation. If you / your husband would like further specialist advice please do not hesitate to contact me (0800 077 6180).

  15. Dave says:

    Hi,

    Looking at potentially IVA or Bankruptcy for circa £130k business PG’s and personal debt.

    Concerned about equity in my house, house valued £300k owned jointly with wife, mortgage £170k, so my share of equity £65k. I have 3 young kids and a mother in law that lives in the annexe next door, separate address.

    Because of business failure currently seeking employment to ensure I can upkeep an IVA. Should I be concerned about my equity share in the house, potential interest charge against property from creditors?

    Value any advice you can give.

    Many Thanks

    1. Hi Dave

      From what you have said if you go bankrupt the official receiver or trustee will be obliged to raise your share of the home equity (£65k) for your creditors. You will get 12 months to come up with the funds (or enough to make a reasonable offer). If you cannot then after 12 months they can force you to sell (regardless of any other dependants living in the property).

      If you are unlikely to be able to raise this level of cash within 12 months I would recommend avoiding bankruptcy. As such an IVA will be the better option for you. As you say a monthly payment IVA application is only possible if you can sustain reasonable monthly payments into it. Alternatively you might be able to use a full and final IVA if you can get your hands on a lump sum of cash (perhaps by remortgaging your property) but just need protection from your creditors while you do this.

      In the mean time I would not necessarily be concerned about your personal banking creditors. However the PGs are potentially more of a problem. There is certainly a risk they may think about applying for a CCJ and then a charge against your property. To try and avoid this you should maintain a dialogue with them and even try and get a token payment plan in place as a show of good faith.

      Please get in touch with me if you want to discuss your options in more detail (0800 077 6180)

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