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What happens to my house if I go Bankrupt

What happens to my house if I go Bankrupt

What happens to my house if I go Bankrupt

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:

 

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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.

Thinking about going bankrupt but need more advice? Call us (0800 077 6180) or complete the form below. Its free and confidential.

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    64 thoughts on “What happens to my house if I go Bankrupt

    1. Tabatha says:

      I would like to know if I will have to vacate my home as soon as I am made Bankrupt.

      1. James Falla says:

        Hi Tabatha

        No you will not have to vacate your home as soon as you go bankrupt. As long as you maintain the mortgage payments you will be able to continue living there for at least 12 months.

        What happens after that will depend on the value of your equity in the property. If it is less than £10k the official receiver will take no further action for 2.5 years. If there is more than £10k you will have to try and buy this back or there is a risk that it could be force sold.

    2. Gavin says:

      Hi

      If I go bankrupt will I lose my house I’m Married with 5 children I have always paid my Morgage and don’t want to lose the house. I have about £100000 equity in the house but can’t remortgage because of bad credit history

      1. James Falla says:

        Hi Gavin

        If you have £100k of equity in your property then yes it is certainly at risk if you go bankrupt. This is the case even though it is in joint names and you have 5 kids. The Trustee in Bankruptcy will still have to release your share of the equity by forced sale if necessary. I would therefore have to advise you to avoid bankruptcy and consider an IVA which would give protection for your home.

    3. Cara says:

      Can I buy back my own beneficial interest in jointly home property. I have been discharged

      1. James Falla says:

        Hi Cara

        You can buy back your interest in a jointly owned property from the official receiver at any time after you go bankrupt. Given you are no discharged I assume you wandering whether you can do this with your own funds. The answer is yes as long as you received the funds or generated them from endeavours after your were discharged not before.

        If you are interested in buying back your interest you will probably need to speak to the LTADT (long term asset distribution team) at the insolvency service. Contact the OR who dealt with your case and they should be able to point you in the right direction.

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