What happens to my Mortgage if I go Bankrupt?
- 23 Nov 2021
If you are a home owner your outstanding mortgage cannot be included in bankruptcy. You must continue maintaining the monthly payments.
Included in this article:
- Is your mortgage written off if you go bankrupt?
- How do you continue paying it?
- What if you have arrears?
- Can mortgage debt ever be included?
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Is your Mortgage Written Off if you go Bankrupt?
Your outstanding mortgage is not written off if you go Bankrupt. This is because only unsecured debts are included in the process.
Mortgage debt is secured against your property. If it is not paid the lender ultimately has the right to evict you and sell the property to recover the money they are owed.
Given this if you want to remain in your property you must ensure that you keep up with the agreed monthly payments after you go Bankrupt.
Your mortgage lender will be informed that you have gone bankrupt. However they will not have an issue as long as you maintain your payments.
How do you continue Paying your Mortgage when Bankrupt?
When you go bankrupt you maintain control of your income and bank account. You also remain responsible for keeping up the payments towards all your ongoing living expenses.
However all the payments you were making to your unsecured debts stop. This frees up cash and should mean that you then have sufficient money to pay your agreed living expenses.
The amount you need for paying your mortgage and any other debts secured against your property is included in your living expenses budget. As such you should always have sufficent funds to make these payments on time.
After you go bankrupt you only have to make payments towards your debts if you can afford to after your living expenses have been paid.
What if your Mortgage is in Arrears?
In the same way as your mortgage itself any arrears you have are not included in bankruptcy. You will still have to pay these back after you have gone bankrupt.
There are two options for doing this. Firstly you can ask your lender to add the arrears to the end of your mortgage. In this way your monthly payments remain the same but will just be extended slightly.
If they are unwilling to do this you will need to make an arrangement to overpay each month so that the arrears are paid off in a sensible period of time. You will be allowed to include the overpayment amount in your living expenses budget.
Repaying mortgage arrears while you are bankrupt is possible as long as the monthly payment amounts are sensible.
Can Mortgage Debt ever be included in Bankruptcy?
If you cannot afford to pay your mortgage you may have to move out of your property and hand back the keys to the lender. This process is known as repossession.
Once the property is repossessed it will normally be sold at an auction. If the sale price is less than the debt outstanding there will be what is known as a shortfall.
You are still liable to pay the shortfall debt. However because the property has been sold this is now unsecured. It can therefore be included in bankruptcy and is written off like any other unsecured debt.
A mortgage shortfall can be included in Bankruptcy. If you anticipate there will be a shortfall after repossession you can protect yourself by going bankrupt even before the lender sells the property.
I was made bankrupt 5 years ago and want to increase my mortgage with current lender NatWest but some of my credit cards with the same bank were written off in the bankruptcy. Are they likely let me increase my mortgage?
Hi Penny Ann
First, it will normally only be possible to increase your mortgage with your high street current lender after the record of your bankruptcy has come off your credit file. This will be 6 years from the date you went bankrupt. So if this was 5 years ago, you are likely to need to wait another 12 months.
Even after 6 years, not all high street mortgage lenders (who give the best rates) will consider lending you more money. Of course you can approach NatWest, but if they say no, you will need to change to a different lender.
If you decide to investigate different lenders, it would be best to use a mortgage broker who specialises in assisting people with getting a mortgage after bankruptcy. We can recommend one if you like. For further information and assistance with this, please give me a call (0800 044 3194).