Bankruptcy and your home
Before considering opting for Bankruptcy, it is important that you consider how it may affect your property.
Your Share of Equity
Your share of equity is calculated by deducting the balance of your mortgage from the current value of your property. If the property is owned jointly, then generally it is assumed that you are entitled to 50% of the equity. See the example below:
| £ | |
| Current value of property | 250,000 |
| Deduct balance due on Mortgage | (175,000) |
| Net Equity | 75,000 |
| Less Spouse’s Share | (37,500) |
| Your Share of Equity | 37,500 |
Calculating your share of equity can be more complex especially if the property is in your sole name but you and your partner have both contributed to the mortgage and upkeep of the property. Your partner might be entitled to a share of the equity (called beneficial interest) if they can evidence their contribution. If in doubt it is wise to get advice.
If you share of equity is less than £1,000, your equity will be excluded but may have to pay for a solicitor to help you get the Bankruptcy Restriction removed from your property.
Trustee’s Duty
The Trustee in Bankruptcy is obliged to recover a sum of money equal to your share of equity in the property. A Bankruptcy Restriction will be added to the property’s entry on the land registry and you will not be able to sell or refinance your property without agreeing a deal with your Trustee. The registration can be removed if you can demonstrate you do not have an interest in the property.
The Trustee has 3 years to deal with your equity in your property. If for some reason your Trustee struggles to get you to co-operate with either introducing a sum in lieu of your equity or selling the property, they can apply to court for a possession order and ultimately you could be evicted from your property. So dealing with a Trustee quickly and promptly in relation to your share of equity is vital.
Bankruptcy and Renting from a private landlord
If you have rent arrears, these will be included in your Bankruptcy. The landlord will not be able to pursue you for the rent arrears but they could obtain a court order to evict you. If you build up arrears after the date of bankruptcy, your landlord will be able to evict you and pursue you for the rent arrears. Your Trustee will not allow you to pay rent arrears out of your income and expenditure as the debt will be included in your Bankruptcy.
Getting out of Bankruptcy
If you end up bankrupt perhaps because you have ignored important paperwork or not understood the seriousness of your situation, it is possible to get out of bankruptcy if you can pay your debts and the costs of the bankruptcy in full. Alternatively, it is possible to get out of bankruptcy by putting forward proposals for an Individual Voluntary Arrangement “IVA”.
Bankruptcy is complex and it is vital that you get advice before you opt for bankruptcy or if you find yourself bankrupt.
More about bankruptcy
We are proud of our 5* Trustpilot reviews
We provide the most comprehensive debt advice and support for individuals and business owners. Our experienced team offers a personal approach to finding solutions to your debt challenges.
Client Story
Shirley and her husband were involved as partners in the purchase of a potential development with another couple. Unfortunately part way through the development the relationship between the 2 couples broke down and Shirley and her husband decided to exit the deal and hand over their share to the other party. This resulted in action taken against Shirley’s husband and he chose to petition for Bankruptcy. At the time no action was taken against Shirley. However, some years later the other party issued a writ against Shirley and entered into a Deed of compromise to repay of £57,000 the debt by monthly repayments. Shirley’s sought advice from The Business Debt Advisor team on Shirley’s behalf. Shirley’s health had been seriously effected by a bout of cancer and the stress of the debt was effecting her recovery. As Shirley and her husband lived in rented accommodation and had minimal assets, it was clear that bankruptcy was really the only sensible option. The Business Debt Advisor team helped Shirley pull together financial information on her assets which were minimal plus her debts and income and expenditure. We helped her complete her bankruptcy application online and her husband who was still working, helped out with the application fee of £680. Within days Shirley was bankrupt and her experience of dealing with the Official Receiver was very positive. They agreed with her that she would affordable pay income contributions of £210 per month for a 3 year period.