As a home owner it is a common fear  that you will automatically lose your home if you go Bankrupt.

In fact in many circumstances this is simply not the case. However if you want to have any chance of keeping your property you must keep paying the mortgage and any loans secured on it.

The reason for this is that only unsecured debts are included in the actual Bankruptcy itself. Secured debts such as your mortgage are not included and you must continue to pay these or you will risk your home being repossessed.

How will I be able to continue paying my mortgage if I am bankrupt?

When you apply for bankruptcy you need to complete a living expenses budget to show your actual expenses and your income.

It is very important to fill out your living expenses form in detail making sure that you add all your reasonable monthly allowances including your mortgage payment and any other secured loan payments. You will always be allowed to pay for these and your other agreed living expenses out of your income.

You will only ever have to pay anything towards your debts if there is any money left over after all of these payments have been paid.

This means that the process of bankruptcy will actually free up cash that you would previously used to pay your unsecured debts so that it can now be used to pay your mortgage.

What happens if I cannot afford to pay my mortgage when Bankrupt?

If despite the fact that Bankruptcy has taken away all of your unsecured debt payments you are still unable to afford to pay your mortgage payments then your home will be at risk of repossession by the mortgage lender. This solution does not give you any protection against repossession if you cannot pay your mortgage.

The decision about what to do with your property if you are still struggling with your mortgage payments will be influenced by the amount of equity in your home.

Clearly one of the options is to simple sell your home and move somewhere cheaper. However if you are considering this you should bear in mind that any equity in your property that is released from the sale will have to be handed over to the Official receiver.

Given this rather than struggling on while you try to sell your home which you will not benefit from anyway an alternative option is simply stopping your mortgage payments, move out of the property into rented accommodation and then let it be repossessed.

Yes the amount of equity in it will be reduced after any sale. However as you stand to lose all of this into your bankruptcy anyway you really have nothing to lose personally.

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What happens if there is no equity in my property?

If there is no equity in your property when you declare bankruptcy it is unlikely that you will be forced to sell your home. However you must continue paying your mortgage or risk losing your house to repossession anyway.

If you can afford to pay the mortgage then there is every chance you will be able to keep your home. If property prices do not rise within the next three years the Official Receiver will simply return the interest in the home to you after this time.

However what do you do if you simply cannot keep up your mortgage repayments with a property where there is no equity? You might consider trying to sell. However it is probably not worth struggling on trying to pay your mortgage while you try to sell your property given there is no equity to save.

As such the better option might be to simply move out into rented accommodation straight away. The mortgage lender can then repossess the property and sell it. The house may well be sold at auction for less than the outstanding mortgage meaning that there will be a mortgage shortfall.

However the key here is that once the shortfall is realised, because you are already bankrupt this debt which is now unsecured is also written off. This is the case even if it has taken a long time to realise the mortgage shortfall and you are already discharged by the time that this happens.

Will I have to pay my mortgage if the house is jointly owned?

If you have a joint mortgage with someone else both parties are liable for the mortgage payments. In the same way as if the mortgage was in your name alone if you go Bankrupt the payments must be maintained to have any chance of saving the property. If this cannot be done the house will be at risk of repossession.

Because the property is jointly owned, if there is significant equity in it, the Official Receiver (OR) can only ask for your share of this to be released as only your half of the interest in the property will be passed to them.

If you believe the mortgage payments can be maintained and you want to save the property, the other joint owner or a third party can buy out the Official Receiver’s interest if sufficient cash can be made available. If the mortgage payments cannot be maintained, then you might decide to sell the property before the OR forces this to happen. Once sold the joint owner will receive their share of the equity.

If there is no equity and you can maintain the mortgage payments in the property then there is no reason why you should not stay. If prices do not rise in the next three years you share of the interest will be returned to you after that time.

However if you cannot afford to maintain the mortgage, allowing the property to be repossessed is again an option. But in this scenario you must be aware that the joint mortgage holder will also be jointly liable for any mortgage shortfall after the sale.

For this reason if a jointly owned house is repossessed and a large shortfall is anticipated then both owners might want to consider bankruptcy so that both are protected from paying this debt.