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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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?
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.
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.
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.
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).
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.