Joint Mortgage and Bankruptcy
- 23 Nov 2021
If you are considering Bankruptcy but have a joint mortgage you need to understand the implications for the other mortgage holder.
Included in this article:
- What happens to a joint mortgage?
- The affect on joint equity
- What if there is no equity in the property?
- What if you cannot afford your mortgage payments?
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What happens to a Joint Mortgage if you go Bankrupt?
Mortgage debt is secured against your property. As such it is not included in bankruptcy. It will not be written off by the process.
If you want to keep your property you must maintain your mortgage payments. If you do not the mortgage lender will eventually be granted the right to evict you from your home.
Your lender will be told that you have been made bankrupt. However they will generally not be concerned as long as you keep up your monthly payments.
You are allowed to set aside the cash required to maintain your joint mortgage payments in your bankruptcy living expenses budget.
The affect on Joint Equity if you go Bankrupt with a Joint Mortgage?
When you go bankrupt your beneficial interest in your property passes to the Official Receiver (OR). The value if this Beneficial Interest is basically the same as your share of any equity.
If you have a joint mortgage meaning the property is jointly owned only your share of any equity is affected. The other owner’s share remains theirs.
However they may still face a significanty issue. This is because the OR is obliged to release your share of the equity. If the funds cannot be raised in any other way the property may have to be sold to achieve this.
A joint mortgage holder is normally powerless to stop the sale of the property if equity cannot be released in any other way. Other than in extraordinary circumstances the court will allow the sale.
What happens to a joint mortgage if there is no equity in your property?
If there is no equity in your property when you go bankrupt your beneficial interest is worth nothing. However it will still be transferred to the Official Receiver (OR).
The OR is not obliged to take any further action for 3 years. However at the end of this time they will revalue the property. If there is still no equity your interest is simply returned to you. No further action is taken.
The issue is where the value of the property has increased. If so the OR must then realise your share of the equity. This may be in the form of a legal charge against the property. However where the amount is significant the property may have to be sold unless it can be released in any other way.
If there is little or no equity in your property when you go bankrupt you can protect against possible increases by buying back your beneficial interest from the OR straight away.
What if you Cannot Afford your Mortgage Payments?
After you go bankrupt you stop paying your unsecured debts. This should release spare cash to enable to to keep up with your priority living expenses such as your joint mortgage payments.
If despite this you and your partner are still unable to afford the payments the reality may be that your property is simply be too expensive for you.
You may then have to consider selling and moving into cheaper rented accommodation. It is unlikely you would be able to get a new mortgage for some years after you are discharged from bankruptcy.
If you are unable to sell due to negative equity you could consider allowing your property to be repossessed. However the other joint mortgage holder may then also have to consider bankruptcy to deal with any shortfall debt.
Hi James,
Thank you so much.
She lives with her new husband in a house he owns.
Could they lose that house or have to use it’s equity to repay my daughters loan?
Best wishes
Stephen
Hi Stephen
If she is now married and living in her husband’s house, this could make things much more complex. I would not recommend bankruptcy without first speak to me for further advice.
HELLO. My daughter was married and had her house repossessed during a divorce. The ex husband declared bankruptcy. 20 years on she is still paying…and he was older, she was very young. Whats the situation. A loan charity administer the balance of the loan now? She lives in poverty
Hi StephenK
I assume your daughter is not a home owner? If not and she is on a low income, I would advise that she goes bankrupt. This would mean her debt would be written off once and for all and she could finally put it behind her.
If her total remaining shortfall debt is less than £30k she might qualify for a DRO. This would give the same outcome as bankruptcy and at a cost of £90, it would be cheaper to implement (the cost of bankruptcy is £680). However, the application process for bankruptcy is far less hassle than a DRO. So if you were willing to help her to pay the fee, this is the route I would recommend you consider.
If you want to discuss this in more detail please don’t hesitate to contact me (0800 044 3194)