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Rented Property and Bankruptcy
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Rented Property and Bankruptcy

Rented Property and Bankruptcy

If you live in a rented property there is nothing to stop you going bankrupt. However you may be worried about how your home will be affected.

  • How is your rented property affected if you go bankrupt?
  • Will your Landlord be told?
  • Can you move to a new rented property after going bankrupt?
  • How can you move if you have a poor Credit Rating?

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How is your Rented Property affected if you go Bankrupt?

Going bankrupt can be a good way of dealing with your debts if you are renting your home. This is because your rented property is not treated as one of your assets.

There is no risk to the property itself because it is not yours. As such it is not involved in your bankruptcy in any way.

You may be worried that the negative affect on your credit rating could somehow blacklist the property. This will not happen. Your poor credit does not rub off on the place you live.

Debt problems can be a common problem for renters. During 2015 the debt charity StepChange found that 75% of the people they worked with were not homeowners.

Will your Landlord be told if you go Bankrupt?

It is unlikely that your landlord will be told about your Bankruptcy. Normally this will only happen if you have rent arrears. They would then be a creditor and the Official Receiver would have to speak to them.

Given this the only way they are likely to find out is if you tell them or they do a new credit check on you. However it is unlikely for this to happen even if you are planning on renewing your tenancy agreement.

If you are worried about your landlord discovering your bankruptcy you could tell them yourself. Their natural reaction will be to worry about the rent and the affect on their property. However you can reassure them that there will not be a problem with these things.

If you live in England, Wales or Scotland bankruptcy is not advertised in your local newspaper. If you live in Northern Ireland it is advertised in the Friday edition of the Belfast telegraph. As such in Northern Ireland your Landlord could find out.

Can you move to a different Rented Property while Bankrupt?

There may be a number of reasons why you need to move to a new rented property while you are bankrupt. Perhaps you have changed your job or you need a different sized home.

There is nothing to stop you moving. However you will need to consider how much rent you can afford to pay. It may not be possible to rent a more expensive property unless your income is also increasing.

If you are making a payment towards your debts the Official Receiver may agree to reduce this to compensate for an increase in rent. However they will only be likely to do so in exceptional circumstances.

Any deposit you paid when you first rented your property is one of your assets. In theory it has to be paid to the Official Receiver if and when you get it back. However if you move you are allowed to use it to pay for a new deposit.

How can you overcome a Rented Property credit check?

A major issue you will face if you want to move during or after your Bankruptcy is your Credit Rating. Before you can rent a new property most private landlords will carry out a credit check against you. You are likely to fail this.

There are really only two ways you can overcome the problem. The best is usually to offer that someone will act as a guarantor for your rent payments. Most landlords will be happy if a guarantor is provided.

Another option is to pay rent in advance. Generally speaking you would need to offer at least 6 months upfront. Clearly you may not be in a position to do this.

If you are moving to a Council or Housing Association property the fact that you have a poor credit rating should not be a problem. You will not normally need to pass a credit check before you can move in.

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12 thoughts on “Rented Property and Bankruptcy

  1. Marcus Ojo says:

    Trustee demands crystalization of negative rental properties 4 of the 22 property portfolio. This is despite unbroken payment to lender and relaxation by the bank. Trustee wants me to sell other properties to realise the £150,000.

    Bankruptcy order was originally for £9k. This was processed, in vengeance and in my absence, by North Lincolnshire local Authority to another rental property unknown to me until bankruptcy order was finally issued. This amount has now been paid in December 2017 to help trigger the annulment and avoid unbearable fees and expenses which is now running into £20,000.

    The trustee have now insisted I liquidate assets including our residential home to cover the crystalization. My objection was these are rental properties, I have never missed a mortgage payment of any of these properties, the lender has been very co-operative and I thought I only need to repay unsecured creditors/running costs of £15,000.

    Please help me with this as this is damaging my life and hope for justice

    1. Hi Marcus

      In the same way as for your residential property the beneficial interest in your rental property portfolio passes to the Official Receiver on the day you are made bankrupt. As such if there is equity in these properties then the Trustee is within their right to force their sale. The funds raised can then be used to pay the debts you owed on the date you went bankrupt plus any costs and fees incurred by the bankruptcy Trustee plus interest on the debts owed at 8% per year from the bankruptcy start date.

      In your case it sounds as though the Trustee is arguing that the potential mortgage shortfalls associated with some properties in the portfolio that are in negative equity must also form part of the debt you owe. If so then the action they are taking would make sense and may be legitimate.

      Having said we are not solicitors here and given the complex nature of your circumstances I am unable to give more concrete advice on your options and legal rights. I would strongly suggest that you take advice from a specialist insolvency soliciotor at this point.

  2. Kevin says:

    Hi,

    I live in private rented accommodation and am considering bankruptcy. I have lived here for 8 years and have never missed a payment on my rent.

    I am concerned that going bankrupt may put a black mark on this address thus affecting my landlord and possibly leading to eviction. I have a good relationship with my landlord but this does concern me. Any ideas?

    Thankyou for your time.

    1. Hi Kevin

      As discussed in the article above if you go bankrupt your landlord is very unlikely to find out. You will have to give their details on your application. However they will not be contacted unless you have rent arrears which would then have to be included as a debt. As such they are only likely to find out if you tell them yourself.

      You do not need to be concerned about the property becoming blacklisted. This does not happen. Properties do not become blacklisted if you go bankrupt. It is only your personal credit rating that will be affected. As such you have nothing to worry about.

  3. Marie says:

    Hi.

    I am bankrupt and currently renting a room in a shared house. I want to move into a flat but the rent including bills will exceed my monthly salary.

    My income is unlikely to increase in future so somebody (my relatives or my boyfriend) is going to help me to pay part of the monthly rent.

    I know I will have to tell the OR that I have moved but do I have to explain how I will afford the rent? What proof do I need to provide that somebody is helping me? Does the supporting person need to transfer the money to my bank account from his account or give it to me in cash?

    1. Hi Marie

      In terms of moving to a more expensive flat this is no problem. It is perfectly acceptable for a third party such as family or a friend to help you pay for this. As you say once you have moved you need to inform the OR that your address has changed. However I do not think you will not have to complete a new income and expenses budget.

      The OR will normally only ask you to update your income and expenses budget if your income (such as your salary or a benefits payment) changes. In your case that is not happening. You will simply start receiving financial help from family to allow you to pay for the new accommodation.

      You can receive the money in cash or into your bank account which ever is easiest for you. It makes no difference to the OR.

      When you tell the OR about your change of address they may ask you whether there will be a change to the cost. If so then you should tell them it is increasing. But you can also confirm that your income is not changing and you will be getting financial help from family to pay the increased expenses. The OR will be fine with that. I would be very surprised if they want any further details.

  4. Karen says:

    Hi, I am currently living with my Dad but am looking to move out and rent privately again. I went bankrupt in Feb of this year as I could no longer afford to pay my debt due to being on maternity leave and then having reduced income thereafter as my partner has had to give up work to be the primary carer for our daughter.

    Due to the bankruptcy I am having great difficulty finding a letting agents that will even contemplate taking us on because of my bankruptcy. Is there anyway around it? I have a homeowner guarantor but obviously cannot afford to pay 6months rent in advance. I am open and honest to all the letting agents before I arrange any viewings but as soon as I tell them, they say they can’t help.

    Any ideas or ways around this would be gratefully received. We need to find somewhere to live by the end of May or we will be homeless. Many thanks.

    1. Hi Karen

      Unfortunately there is no easy answer to this. The record of your bankruptcy will remain on your credit file for 6 years from the start date. As a result during this time it will be difficult to get a new rented property through a letting agent as you will normally fail their credit check.

      Normally the only way round the problem is either to pay rent in advance OR to offer someone with a good credit rating who can act as a guarantor for the rent. That way if you do not pay it they would be liable. Most letting agents and landlords are happy with one or the other of these options.

      You are doing the right thing being up front as most agents will do a credit check and discover your situation anyway so you don’t want to waste time by not telling them. Have you been clear that you can provide a guarantor who will pay the rent if you do not for some reason?

  5. Alex says:

    Hello. I am currently in an IVA but I am planning to cancel it and go bankrupt. However, I am also looking for a property to rent. I am wondering if it is better go to bankrupt before I find something or to go bankrupt when I’ve moved in. I’m just worrying about how this will affect my rental.

    1. Hi Alex

      The fact that you are currently in an IVA is recorded on your credit file and so your credit rating is probably already pretty poor. As such you may face issues renting a property whatever you do because you are likely to fail a letting agent credit check.

      This situation will not be made any worse if you go bankrupt. Having said that I normally recommend that it is best to move into new rented accommodation first if you can and then go bankrupt.

      If you are planning to use a letting agent you should be up front with them about the fact that your credit rating is poor. The normal way to overcome this is to find someone with a good credit rating who is willing to act as a guarantor. This is normally good enough for most landlords.

  6. Sorin says:

    Hi,I was suspended from my job. I am behind with 4 months with the rent. I have some credit cards to pay.I am a foreigner in Northern Ireland. If I declare bankruptcy what will hapend with rent debts? Maybe I will be available to pay bankruptcy fee but I will not be available to pay anything other.

    1. Hi Sorin

      Rent arrears are included in Bankruptcy. This is the case whether you go bankrupt in England, Wales or Northern Ireland. As such if you go bankrupt these debts and your credit cards will all be included and written off.

      What is your plan after you go Bankrupt? If you are living in private rented accommodation the landlord will probably not be too happy that his rent arrears will not be paid and may look to evict you. As such you will have to look for alternative accommodation.

      Are planning to move back to you home country? If you go through the process in Northern Ireland you are not allowed to move abroad without the permission of the court until after you are discharged.

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