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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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.
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.
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
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.
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
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).