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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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 ??
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.
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
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).
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
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)