Can I include a Charging Order debt in Bankruptcy?

Only unsecured debts are included and written off in Bankruptcy. A Charging Order turns an unsecured debt into a secured debt and as such once one has been issued the associated debt cannot be included.

After you are Bankrupt you are still responsible to pay any secured debts such as your mortgage or debts which have been secured with a charge. This means that if you have been allowed to keep your property you will still owe any charging order debts.

Despite this we consider whether there are any circumstances where a debt secured with a charge could be written off if you go Bankrupt.

What if your property is repossessed?

A property would only be sold in bankruptcy if doing so would actually raise any cash for your creditors. As such if your property is in negative equity you will normally be able to keep it after you have been declared bankrupt because there is no monetary value in it.

However the reason for the negative equity may well be the fact that you have charging orders which have been issued against your property. Where this is the case one option open to you is to allow your property to be voluntarily repossessed by the mortgage lender.

Once the property is sold any charging order debts that remain unpaid then automatically become unsecured once again and can then be written off if you go Bankrupt.

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When is it sensible to write off all your debt and start again?

Allowing your home to repossessed may seem exceedingly harsh. It means that you will end up losing your property and probably having to move into rented accommodation. As such, it is not a route that you would pursue unless you want to totally wipe the slate clean, remove all of your debt and start again.

Of course even though it may be in negative equity many people will prefer to remain in their property and continue paying their mortgage and secured loan payments in the knowledge that eventually house prices will rise and the negative equity situation will be reversed.

However, you need to remember that debts such as charging orders may continue to grow as interest could be added at the statutory rate of eight percent per year. House prices may therefore have to rise significantly before the negative equity is reversed, which in the current housing market might take many years.

Given this, if you have already decided to declare yourself bankrupt because you have significant unsecured debts and secured debt and charging orders have been issued which mean that your property is in negative equity, then moving out of your property and allowing it to be repossessed is definitely worth consideration.

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    2 thoughts on “Can I include a Charging Order debt in Bankruptcy?

    1. Jannett says:

      Hi

      We have a restriction on our property which we own 50 50. The restriction is only for my husbands half. We wish to sell the property and I understand as long as we have notified the claimant we are selling the property they are unable to stop the sale and we are under no obligation to pay them any money, we understand this may be harder to do.

      The restriction was put on for a £140.000.00 debt which is now £170.000.00 with interest in May 2011, the equity is £90.000.00 50% being £45.000.00, we are trying to sell the property and the claimant is saying they want £170.000.00 to lift the restriction,

      My husband also was bankrupt on 8th August 2011 and the claimant was included in the unsecured debt, we have asked insolvency for clarification that the debt was finished with the bankruptcy.

      1. Hi Jannett

        Firstly the debt you refer to would NOT have been included in your husband’s bankruptcy. Secured debts are not included. Given the restriction was issued prior to the date he went bankrupt the debt could not be included.

        As highlighted in the article above the only way that the debt could now be included in the bankruptcy is if the house is sold or repossessed leaving the debt unpaid. Given it would then be unsecured it would be written off by the original bankruptcy as a contingent debt.

        In terms of whether you will actually be able to sell I believe that as the property is joint owned it would be possible. However you will need to get confirmation of this from your conveyancing solicitor.

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