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 and if not how would your creditors get access to it?
Jump to article contents:
- Releasing equity in bankruptcy
- Joint equity in bankruptcy
- Can I avoid losing my house
- Someone else paid my deposit
Do you want advice on equity or Bankruptcy? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts.
Releasing equity in bankruptcy
Bankruptcy will normally write off most if not all of your unsecured debt, but that may come at a price. If you are a homeowner your share of any equity will have to be released and paid to the Official Receiver. There are basically two ways this can happen.
The first and best option is for you to “buy back” the value of your equity from the Official Receiver (or Trustee if appointed) for a cash lump sum. The amount you have to pay will usually need to be the equivalent of the value of your share of the equity (although you may be able to offer less to a Trustee). Once this is done your property is yours to keep.
If you are unable to unable to offer a cash lump sum and the amount of your equity is greater than £10k there is a risk your property may have to be sold to release your share. If you are living with family members this is unlikely to happen within the first 12 months. However after that the Official Receiver or Trustee could ask the court for an Order to force you to sell.
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 would normally be seen as being owned jointly with them. As such the total equity is split. This is often on the basis of a 50/50 ownership but could be divided differently based on pre agreed terms.
In the event of your bankruptcy 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. After the property is sold the other joint owner will receive their share of the equity released to keep.
Where the Official Receiver applies for an Order for sale it is very unlikely the other joint owner would be able to prevent this.
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 decided to give up your property and rent.
As an alternative you may want to consider an Individual Voluntary Arrangement. 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.
What if someone else paid the deposit?
A third party may have paid the deposit when you bought your house. This person could be the other joint owner of the property or a third party who is not a registered owner.
Where this is the case, the person who paid the deposit can often claim that the money was simply a loan and must be repaid in the event of a sale. In these circumstances it may be possible to argue that the sum must be deducted when calculating the amount of equity available for the Official Receiver.
This could make the difference between the house being at risk or not after bankruptcy. If once the deposit is repaid there is little or no equity, the OR may not look to sell the home at all.
The effect on home equity must be carefully considered before choosing any debt solution. Call us (0800 077 6180) or complete the form below to get expert advice on deciding which is right for you.
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