One of the concerns when considering bankruptcy is how it could effect any equity you have in your property. Will you get to keep it? Can your creditors get access to it?
Jump to article contents:
Rather speak to someone? Call 0800 077 6180 or fill in the form below and we’ll call you
Releasing equity in bankruptcy
Bankruptcy will normally write off most if not all of your unsecured debt. But if you are a home owner that may come at a price. If your share of any equity in your property is worth £10,000 or more, it will have to be released and paid to the Official Receiver (OR). There are basically two ways this can happen.
The first and best option is for you to “buy back” the value of your equity for a cash lump sum. The amount you have to pay will usually need to be the equivalent of (or close to) the value of your share of the equity. Once this is done your property is yours to keep.
If you are unable to buy back your equity within 12 months, there is a risk that your property may have to be sold. The Official Receiver or Trustee in Bankruptcy could apply to the Court for an Order to force you to sell if necessary.
If you go bankrupt the Official Receiver does not want to sell your house. They would much prefer you buy back your financial interest with a cash lump sum.
Joint equity in bankruptcy
If you own your property with someone else, any equity is normally jointly owned with them. In the event of your bankruptcy the total equity is split. This is usually on the basis of a 50/50 ownership but could be divided differently based on pre agreed terms.
Only your share of the total equity is at risk. The other joint owner’s share is protected. It would common for them to offer to buy your share from the Official Receiver thus protecting the property.
If they are unable to do this then depending on the amount of equity the Official Receiver or Trustee can still apply to the court for an Order for sale. If this happens the other joint owner is unlikely to be able to prevent the sale even if children are also living in the property.
The other joint owner (or a 3rd party) may have paid the deposit when you bought your property. If so they can usually deduct this sum from equity. The remaining amount is then split to give the share available for the Official Receiver.
Can I avoid losing my house?
If the value of your share of the equity in your property is over £10,000 then your property is potentially at risk if you go bankrupt. As discussed above you can protect your home by buying this back from the Official Receiver.
If it is not going to be possible to ‘buy’ your equity then you may well lose your home. In these circumstances bankruptcy may not be a sensible solution for you unless you have already made the decision to give up your property and rent.
As an alternative you may want to consider an IVA. This solution gives far more protection for your property but will require you to make reasonable monthly payments towards your debts for 5-6 years.
The effect on home equity must be carefully considered before choosing any debt solution. To get further advice on deciding which is right for you call us (0800 077 6180) or complete the form below.
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.
I’m seperated from my wife nearly 18months now, she lives in the house with my 3 children. She and 2 of my Children all get DLA for autisim and adhd, and are also home schooled by her. A rough online valuation shows the house valued at 205k, with 185k left on it to pay.
I have debts of around 19k and been adviced by step change to declare myself bankrupt, at the time i thought there was no equity in the house as my wife said there wasn’t.
Do i need to inform her that i’m looking at going bankrupt??
Hi Richard
If you are a joint owner of a property with your ex and there is £20k of equity in the property bankruptcy could be an issue for you. On the face of it 50% of the equity is yours and the official receiver must act to release this for the benefit of your creditors.
Given your share is likely to be £10k or less the official receiver is unlikely to take any immediate action. However after 2 years and 3 months they will want to recalculate the value of your share and realise this sum. Your options at that time will be either to pay the equivalent amount to them to “buy back your interest”. Alternatively if the value at the time is £10k or less the OR may decide to take a charge against the property. Worst case they can apply to the court to force a sale.
Given this risk I suggest you consider avoiding bankruptcy and looking at the option of an IVA or Debt Management Plan to manage your debt. This would protect the house. If neither of these options are affordable then you must take specialist advice before proceeding with bankruptcy. Please give us a call if you want to discuss this in more detail (0800 077 6180).
Hello my ex husband in bankrupt. There is equity in the marital home but I’ve been paying the entire mortgage for four years since he left. I also funded the entire deposit when working out the equity I need to buy back from the trustee can I deduct the deposit and 50% of capital mortgage payments since he left and use the figure thats left over for the equity?
Hi Emma
Calculating the value of equity in a jointly owned property is often tricky. That said, if your ex moved out of the property 4 years ago and has contributed nothing since then, you should have some leverage.
I believe the Trustee would accept you deducting 50% of the capital repayments you have made towards the mortgage since he left
However, whether or not they will allow you to deduce the deposit you paid before equity is calculated is more difficult. They would certainly allow this if at the time you bought the property, you drew up a legal declaration stating the deposit would be returned to you in the event of a future sale. But in the absence of such a declaration, it is going to be tricky.
You may have an argument if you can prove 100% of the funds you paid came from you and not your ex. For example, if you sold a previous property which was in your name only. But this is not a forgone conclusion and will often depend on the attitude of the particular Trustee.
If you would like to discuss this and get further advice, please do give me a call (0800 077 6180). The advice is free and confidential.