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 keep 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 keep your house after you go bankrupt?
As a home owner, if you go bankrupt, your house is not immediately sold. You can 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.
You must ensure that you keep paying your mortgage. Mortgage debt is not included in bankruptcy unless the property has already been repossessed and there is a mortgage shortfall.
Struggling to get your head round all of this? We can help. Call us (0800 077 6180) or complete the form below. The advice is free and confidential.
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.
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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
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?
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
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.
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
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.