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
Rather speak to a person? Call 0800 077 6180 or fill in the form below and we’ll call you
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.
Thinking about going bankrupt but need more advice? Call us (0800 077 6180) or complete the form below. Its free and confidential.
Arrange a call with a Bankruptcy Expert
Privacy Policy
Your information will be held in strictest confidence and used to contact you by our internal team only. We will never share your details with any third party without your permission.
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.
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.
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
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).
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?
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).