House and Bankruptcy
You may think your house will have to be sold if you go Bankrupt. This is not the case. What happens largely depends on the amount of equity you have.
- What happens to your House if you go Bankrupt?
- The affect on your House if there is Equity
- What if you have no Equity in your property?
- What if your house is owned in joint Names?
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What happens to your House if you go Bankrupt
After you go bankrupt your interest in any house and other property you own is transferred to the Official Receiver (OR). In monetary terms your interest (also known as beneficial interest) is equal to your share of any equity in the property.
This does not mean that your house is immediately sold. Normally you will be able to continue living there as long as you maintain the mortgage payments. However the OR will eventually have to take action to realise your share of any equity.
Mortgage debt is not included in Bankruptcy. If you want to stay in your house you must continue to pay your Mortgage and any other secured loans. If you do not the property is likely to be repossessed.
The affect on your House if there is Equity in it
If you have equity in your house the Official Receiver (OR) must take action to realise this. They have up to 3 years to do so. Their aim is not to force you to sell. They simply want your share of the equity.
The OR will first suggest that you pay them a cash sum equivalent to your share of the equity in the property. You may be able raise this by borrowing from family or friends or by remortgaging.
If you are unable to raise a cash lump sum the OR has two options. The first is to put a legal charge against the property to the value of your share of the equity. The second is to apply to the Court to force you to sell so your share is released. This is more likely where the amount of equity is significant.
The OR does not normally take action to realise the equity in your house immediately. Generally speaking they will wait between 2-2.5 years after your bankruptcy to contact you about it.
What if there is no Equity in your Property?
If you have no equity in your house your beneficial interest has no value. As such it is of no immediate interest to the Official Receiver (OR). However they do not have to take immediate action.
They can wait for up to three years to see if your equity increases. After 3 years if house prices have not increased and there is still no equity the beneficial interest is simply returned to you. That is then the end of the matter.
If the value of your equity has increased you will have to pay an equivalent amount to the OR. You could remortgage to release the cash you need. If you are unable to do this the OR will normally put a charge against the property.
If you feel that the price of your house is likely to rise in the next three years thus increasing the value of your equity it is advisable to buy back your interest from the Official Receiver immediately. You can do this for £1000 plus solicitors costs.
What if your House is owned in Joint Names?
Your house may be owned in joint names with someone else. If this is the case only your share of any equity is affected by your Bankruptcy. Whatever happens the other party’s share remains theirs to keep.
The Official Receiver (OR) still has to realise your share of the equity. Within 3 years of the date of your bankruptcy they will approach you about this.
Most people try to release the required sum by remortgaging. If this is not possible the OR has the option of putting a charge against the property for the value of your share.
The other owner must co-operate in the sense that they cannot prevent you releasing your share of any equity. If they are obstructive the OR can apply to the court to force the sale the entire property.
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