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What happens to my House if I go Bankrupt?
Money Advice, Debt Advice & Debt Help

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.

Included in this article:

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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

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.

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.

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

  1. 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.

  2. 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).

  3. 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.

  4. 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).

  5. 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)

  6. Teresa Gordon says:

    Hi
    I’ve been turned down for an IVA with debts of about £20,000 as my name is on the deeds for the ex-marital home and my creditors think I’ve got money. As part of the divorce I got to live in the house with the children but had to default on the mortgage when my ex husband stopped paying maintenance. I was going to go bankrupt and then he found out that I’d defaulted on the mortgage.

    He and his new wife have moved into the property and pay the rent. What would happen to the house if I tried to go bankrupt. According to Zoopla there’s about £100,000 equity in the house. The house next door sold in April (which is identical) and going on what they made there’d be about £65,000 equity in the house.

    I’d be grateful for any advice. Thank you.

    1. Hi Teresa

      There is nothing to stop you going bankrupt at any time. If you go ahead with an application you would state that you have no interest in any property (I assume you believe this is the case).

      However given you got divorced within the last 5 years the fact that there was a marital home is likely to come up. The OR will then look to see if they feel you have an interest in the property or not. If there is a court ratified divorce agreement stating you do not have an interest then there is be absolutely no issue. They will not challenge this.

      If there is no such agreement they might consider challenging your ex and demanding what they regard as your interest to be paid to them. Whether or not they actually do this will depend on the strength of the case they think they have. It is unlikely they will take any action unless they believe they have very strong evidence that you do have an interest and they believe they can win this argument in court.

      Either way this will be nothing to do with you. If they did try to go after what they feel is your interest in the property it would be between them and your ex. You would not be involved.

  7. Teresa Gordon says:

    Hi James
    Thanks for your reply. My name is on the house deeds. We purchased the house in 2006 where I contributed to the mortgage. He left in 2008 when I took over paying the mortgage. We divorced in 2011 when I carried on paying the full mortgage. My last payment was in April 2014 when I had to default as he’d stopped paying maintenance. I have applied for an IVA which won’t go any further until we both sign an RX1 as they believe I’m entitled to half of the equity. If he doesn’t sign it do I then attempt bankruptcy?
    Thanks

    1. Hi Teresa

      Given you paid the mortgage between 2008 and 2014 it does seem as though you have a financial interest in the property. I cannot guarantee but best guess I would say the value of your interest should be based on the value of the equity on the date you stopped paying the mortgage. After all, the equity generated between 2008 and 2014 is purely down to you maintaining the mortgage payments.

      If your ex will not sign an RX1 because he does not believe you are entitled to any of the equity then yes you can apply for bankruptcy if you wish. Your application would certainly be accepted.

      Then as I mentioned above it will be up to the official receiver to make a decision on whether you do have an interest in the property. If they believe you do they will then decide whether it is in the public interest to pursue this. If they do decide to purse they will take it up with your ex.

      If you decide to go bankrupt and need any assistance please do not hesitate to contact me (0800 077 6180).

  8. Andrea says:

    Hi James
    Can you help me clarify some points. I have been trying to arrange an Iva for a couple of months now but 2 of my creditors are still trying to negotiate for more pennies to the pound even though my practitioner has shared my budgets. The longer it goes on the more likely that bankruptcy will be needed.

    I have one residential property in negative to zero equity and 3 buy to let’s all more than (£10k ) negative equity.

    Q. What happens to the mortgage payments after bankruptcy. If I can’t keep the B2 L’s I may struggle until I build my new client base up. Also what happens to the B2 L payments.

    Also confused re beneficial interest. I have a relative who is willing to help out depending on the costs? Who actually owns the house if they buy the beneficial interest and will I still have the mortgage to pay?

    1. Hi Andrea

      Your creditors do not have to accept your IVA proposal and are within their rights to demand that you increase your payments. If you feel you will not be able to afford what they want you need to think very carefully before going ahead. If you struggle and eventually are unable to pay the IVA will fail and you will have wasted time and money.

      In your circumstances (ie you are a home owner and have buy to let properties) bankruptcy is not straight forward. The first thing to make clear is that if you want to keep the properties all the mortgages must be continue to be paid. Mortgage debt cannot be included in bankruptcy unless the property is repossessed.

      If your residential property has zero equity then you can buy back the beneficial interest for £1000 + solicitor fees. The buy to let properties are more complicated. If they are in negative equity the OR will normally negotiate an amount to buy them back based on the monthly rental income. As a rule of thumb they will require the equivalent of 6 x the monthly rent per property.

      If you have a third party who is willing to put up the funds to help you by back your interest on one or all of the properties, all they are doing is providing the funds. They gain no legal ownership of the properties and the beneficial interest remains yours. You can draw up a private agreement to repay them in time but this is nothing to do with the bankruptcy.

      I you need further advice please don’t hesitate to contact me (0800 077 6180).

  9. Sarah says:

    Hi,

    I rent 50% of my home through the housing association and have a mortgage for the other 50%. If I go down the bankruptcy route and there is quite a bit of equity in my home (however the lease is very low). Would shared ownership still come under the jointly owned home section and I’d have to sell my 50% share?

    1. Hi Sarah

      The bankruptcy rules regarding your property apply whether it is owned 100% by you or it is shared ownership. If it is shared ownership your financial interest in your share of the property is transferred to the official receiver and they will look to realise this value.

      The way your equity is calculated is as follows. Lets say the property value is £300k. As such your share is worth £150k (50%). Now lets say your mortgage is £100k. This means your equity in the property would be £50k (£150k less £100k).

      Based on the above calculation (but putting in your own figures for the home value and your outstanding mortgage) if you have equity of more than £10k it is likely that the OR will appoint a Trustee and you will have 1 year to raise an amount similar to buy back your interest. If you were unable to do that the Trustee would most likely press for the sale of the property.

  10. Katherine says:

    Hi

    I became bankrupt in January 2017, for almost 2 years I have been paying into an IPA – I have a year left on this agreement

    My house is in negative equity and this was included in the bankruptcy. The mortgage is in the name of myself and my late husband .

    I desperately want to move house but if sold of course there will not be enough to pay off the mortgage – can I simply hand the house back to the mortgage lender?

    Thankyou in advance

    1. Hi Katherine

      Given you have not changed your mortgage since going bankrupt (which is unlikely) then the answer to your question is yes. If you hand the keys back to your mortgage lender and allow them to repossess any subsequent shortfall is a contingent debt and is written off by your original bankruptcy. You would not have to worry and you would not be liable to pay it.

      Once the house is sold and the lender asks you to pay the shortfall you simply remind them that you went bankrupt in Jan 17. As such they cannot chase you for the debt. At the same time you inform the official receiver’s office that is managing your case. They will deal with the lender and the shortfall debt for you.

      Remember, if as a result of moving to different accommodation your living expenses go up then you also need to speak to the Official Receiver about reducing your IPA payments accordingly.

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