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Bankruptcy if you are a Homeowner
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Bankruptcy if you are a Homeowner

Bankruptcy if you are a Homeowner

If you are a homeowner you may think bankruptcy is not for you. However it could still be a sensible option to consider particularly if there is little or no equity in your property.

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How is your Home affected if you go bankrupt

If you go bankrupt you will not automatically have to sell your home. You can stay living in it as long as you maintain the mortgage payments. However your beneficial interest in the property is transferred to the Official Receiver (OR).

Beneficial interest is basically your share of any equity. If this amount is £10,000 or more, an equivalent cash sum will have to be raised and paid to the OR.

You will normally have 12 months to raise the required funds. Once the money is handed over, your beneficial interest in the property is returned to you. Any future increases in the property equity are then yours to keep.

Your property is only at risk if being sold if you are unable to or make no attempt to buy back your beneficial interest from the Official Receiver.

Is your Property at risk if there is little or no equity?

Where there is little or no equity in your home, your beneficial interest is still transferred to the OR. But at this point they will take no action as there is no financial value in it for them.

However it is very important to understand that they retain the beneficial interest for 3 years. Normally after 2 years and 3 months you will receive a letter from the OR. You will have to provide an up to date valuation and mortgage statement allowing that to make a revised assessment of the equity.

Where there the value of your share of the equity has increased above £10,000 you will have to raise an equivalent sum and pay this to the OR. If you are unable to do so they could then force the sale of the property. Where the value of your equity is less they are likely to put a charge on the property equivalent to its value.

You can buy back your beneficial interest in your property from the OR at any time after you go bankrupt. You will have to pay a cash sum equivalent to the value of your share of the equity or £1000 which ever is the greater.

What happens if you are a joint homeowner and you go bankrupt?

If you own your home in joint names with someone else, the other joint owner’s share of any equity is not at risk. Whatever happens to the property they will always eligible to receive their fair share of any equity.

However the same rules apply to your share of the equity as if you had been the sole owner. In other words the OR will still need to release your share if there is any.

If the joint owner or another third party can raise the funds to buy back your beneficial interest from the OR this is the ideal solution. If it is valued at more than £10,000 and the money can’t be raised, the OR may then have to resort to selling the property.

Where the OR has to resort to forcing the sale of a property, other joint homeowner can’t stop this. Even if children are involved any legal challenge will normally be refused by the court. After any sale they will be given their share of the equity raised.

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6 thoughts on “Bankruptcy if you are a Homeowner

  1. Jane says:

    We are considering going bankrupt. It’s a very complex situation. We have 60,000 equity in our house and we owe £100,000.

    In the £100,000 we have £35k against the house as it’s a business debt. Anyway we get child tax credits and PIP. Will we still be issued child tax credit and PIP?
    Thank you

    1. Hi Jane

      I can confirm that if you go bankrupt you will still receive the Tax Credits and PIP you are entitled to.

      As you are home owners, before going ahead with bankruptcy I urge you to get specialist advice so you know what to expect. From what you have said it sounds as though you have at least £65k of equity in your property. As such your home would certainly be at risk.

      I would be more than happy to have a chat with you if you like to ensure you understand all the implications and confirm exactly what to expect with the house before making any decisions. I can be contacted on 0800 044 3194.

  2. Neil says:

    Hi.

    I am thinking about going Bankrupt but am unsure about something and seem to get conflicting information…… I am a one third owner of my mums house with my two Brothers. My mum passed passed away but my Step Father lives in this house. Would I be forced to sell as its not my family home? There is no mortgage on the property and it is worth around £120k

    Thanks for any help you can give

    1. Hi Neil

      Your third share of this property is worth £40k (£120k divided by 3). Given this if you go bankrupt the official receiver will have to get their hands on these funds. You or your brothers can raise the cash to “buy back” your interest, but if this is not possible the OR can certainly force a sale to release the funds.

      The fact the property is rented to a 3rd party is irrelevant. You would get 12 months to sort it out but after that the Trustee would have to start legal action to sell if no other arrangement to pay had been agreed.

      Given this if your debt is any less than £40k I would suggest that bankruptcy is not for you and you would be better considering an IVA.

  3. Kevin says:

    Hi,

    I am most probably going to be made bankrupt by HMRC and just need a bit of info on how this will affect my property.

    I have a property which is in a shared ownership scheme with a housing association.I own 25% of the property with my wife. We do not have a mortgage. The other 75% is rent paid to the association. Rent payments are up to date.

    I am trying to find out if an official receiver would ask me to sell my share of the
    property? I think but not sure whether the housing associations name is on the deeds.

    1. Hi Kevin

      The fact that your property is part of a shared ownership scheme does not make any difference if you go bankrupt. The Official Receiver (OR) is interested in your share of any equity in the property. For example if the property is worth £200k then your share (25%) would be worth £50k. Given this is in joint names with your wife her half is protected. As such your personal share would be worth £25k

      If you are made bankrupt then the OR will need to realise this £25k for the benefit of your creditors. It is unlikely they would take any immediate action. Normally they will wait 2.5 years. However after that time they will undertake a new valuation of the property and establish the value of your share of the equity at that time.

      Your share at that time will then have to be realised. First of all the OR will invite you to come up with a lump sum to “buy back your share”. If you are unable to do that then they may choose to apply for a charge against the property for an equivalent amount.

      It is important to note that as a worst case there is always the chance the OR will eventually decide to force you to sell to release the funds. The chance of this increases if after 2.5 years property prices have risen and your share is worth more.

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