House Price Increase after Bankruptcy
- 28 Oct 2021
If there is a house price increase while you are bankrupt buying back your interest from the Official Receiver will become more expensive.
- What happens if house prices rise while you are bankrupt?
- How to protect your home from price rises
- What if you take no action to buy back your interest?
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What happens if House Prices rise while you are Bankrupt?
If you go bankrupt your interst in a property you own is transferred to the Official Receiver (OR). They have up to three years to realise this for the benefit of your creditors.
There may be no equity on the date you go bankrupt. If during 3 years from this date house prices stay the same and the value of the equity stays at zero your interest is then simply transferred back to you. You get to keep your property.
However if during the 3 years there is a house price increase equity may start to develop. The OR will then be within their rights to realise this even though it did not exist on the date you went bankrupt.
The Official Receiver can realise any equity in your property that has developed due to a house price increase for up to 3 yhears from the start date of your bankruptcy.
How to Protect your Home from Price Rises
If there is little or no equity in your house on the day you go bankrupt you can protect it from future rises. You do this by buying back your interest.
If your share of the equity is less than £1000 you can do this by offering the OR a payment of no less than £1000. You will also need to pay the cost of their solicitor which is around £300.
If your share of any equity is worth more than £1000 you will need to pay that amount. The OR is not allowed to take less than this. However after buying it back the OR has no further claim on your property or future rises in equity.
If you want to buy back the interest in your property it is your responsibility to bring it up with the OR They will not normally contact you about it until 2.5 years from the date of your bankruptcy.
What if you take no action to buy back your Interest?
It is possible that you went Bankrupt within the last 3 years but did nothing about protecting the interest in your home. This could now cause you a serious issue if there has been a house prices increase.
When the Official Receiver contacts you about releasing equity the first thing you should do is get your own valuation. Ensure that you get the lowest possibe price. Ask a local estate agent for a quick sale valuation or pay a valuer for a forced sale valuation.
You can then use this valuation when negotiating with the OR. You will need to offer 100% of the value of your share of any equity less a sensible discount for the cost of sale which would be otherwise incurred.
If you are unable to buy back your share of any equity the OR may put a charge on the property for this amount. However in extreme cases they are within their rights to start forced sale proceedings.