New guidelines have been issued this week which will mean that it will be more difficult to buy back your property from the official receiver once you have gone Bankrupt. We consider the effect of the changes.

If you are a home owner and your share of any equity in your property is more than £10,000 you may now have to avoid bankruptcy as a solution to resolve your unsecured debt problem.

This is because the Official Receiver (OR) will be obliged to realise the equity in your property for the benefit of your creditors. If the money cannot be raised in another way the OR may be left with no other choice than to force its sale.

Previously if you found yourself in this position a third party could make an offer on your behalf to buy back your property for a reasonable percentage of your share of the equity. However this situation has now changed.

New bankruptcy guidelines prevent equity buy back deals

Buying back the title to your property is important. If you do not do this at the time you are declared bankrupt, the official receiver has the option of holding the property for up to three years and then forcing its sale.

At the end of three years, the property will be re-valued. The amount of the equity may have increased thus prompting the OR to then force the sale of the property to release the equity at that time.

Up until the end of 2010, if you had equity in your property of £5000 or less, it was likely that you would be able to offer the official receiver (OR) a settlement offer to buy back your interest in the property. If your equity was less than £1000, the title could have been bought back for as little as £1 .

However new guidelines issued this week by the Insolvency Service, mean that the option to make an offer to buy back the equity in your property and therefore protect against the OR revaluing it in three years has been taken away.

The rules now state that the OR is not allowed to consider an offer and can only accept a sum equal to the value of your equity. As such if this is £4500. You will have to offer £4500.

If your equity is valued at less than £1000 or the property is in negative equity, you will have to pay a fee of £1000 to buy back the equity straight away.

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Charging order risk

The guidelines state that if there is any equity in the property in order to regain the property title, an amount which is equal to the value of this equity must be paid.

If the value of the equity cannot be paid, the official receiver will be obliged to keep the title of the property for two years and three months. After this time the property will be re-valued. If at that time, the equity in the property is less than £1000, you will be given back your title to the property and the OR will have no further interest in it.

However, if the equity is more than £1000 (which will be likely if property prices have risen during the two year period) then the interest must be bought back by paying an amount equal to the equity.

If no money can be made available to do this and the equity is not significant (generally less than £10,000), then the OR will hand back the property but will take out a charging order against the property for the value of the equity at the time.

If equity has risen significantly, the OR may then appoint a trustee in bankruptcy to force the sale of the property so equity can be released.

Bankruptcy remains a sensible option

If you are a home owner with little or no equity in your property, bankruptcy remains a sensible option for dealing with a debt problem.

However, it is now even more important that you buy back the title to your property by offering a sum equal to the amount of equity in it.

If you do not do this, the official receiver will retain the title and review the value of the property after 27 months.

At that time, if there is any equity above £1000 you will have buy back the property by paying an amount equal to this equity. If you do not do so, a charging order will be placed against the property before it is returned to you.

You also run the risk of equity increasing significantly in which case your property may be force sold to release this.