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.
Included in this article:
- How is your home affected by bankruptcy?
- Is it at risk if there is little or no equity?
- What happens if you are a joint homeowner?
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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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