This is one of the most frequently asked questions by debtors when considering lodging a bankruptcy petition. But you do have choices and it is very important that you research this area before making such a life changing decision.
This article is written by Joanne Wood who declared herself bankrupt in February 2006. From the age of 17 Joanne worked as a court reporter at the Central Criminal Court. She is the author of Bankrupt 130 of 2006 – a remarkably candid account of what happened to a family after bankruptcy.
In the weeks running up to my own bankruptcy hearing in February 2006 I tried to gather as much information as I could relating to this point. But to be totally honest with you my mind was a mess. The eighteen month battle to save my financial credibility had taken its toll. I was mentally and physically shattered.
The thought of deciphering pages and pages of legal gobbledegook filled me with horror. I just wanted someone to give it to me straight. Was I going to be homeless?
Now, if you have considerable assets (equity) in your home then the bankruptcy court is not for you. You would be better off selling your own home, paying off your debts and starting again with a clean financial bill of health. If you do not take this course of action and then decide to go bankrupt, the Official Receiver will insist that you sell your home and take the required assets he needs to pay off your creditors. Do not allow this situation to occur.
The same applies to endowment policies. These policies will be taken by the Official Receiver and sold to pay your creditors. If you have any endowments, surrender them and pay off your debts. You will avoid bankruptcy and keep your home.
Make sure you have considered both the above factors before lodging a bankruptcy petition. Bankruptcy has to be the absolute last option.
The long periods of silence from the Official Receiver’s office can be very frustrating and the matter of selling your property will not be dealt with until the end of the 12 month bankruptcy period, although you will be asked to provide two house valuations in the first few months.
Do not tell the estate agents what you want these valuations for as they may charge you for this service. Just say that you are considering moving home. You will not have any spare money from the allocated bankruptcy budget to pay for these hidden costs.
Be warned: Do not stand by the letterbox on a daily basis waiting for progress with your bankruptcy. It will not happen. Months can go past without any communication from the Official Receiver’s office. The not knowing how my future would end sent me slightly demented. If you want answers to questions then pick up the phone. They may not always be available but they do return your calls eventually.
If, at the end of your bankruptcy period there are any assets in your home you will be asked whether or not you wish to buy back your interest in the property.
This is how it works:
For instance, your property is valued at £400,000 and after costs (mortgage, secured loans and solicitors’ fees, etc) are taken into account there is a surplus of £100,000 the Official Receiver will inevitably aim to recover that money and pay it to your creditors.
The Official Receiver will allow a third party to buy back the beneficial interest (equity) in the property. What this usually means is that if you can persuade a good friend or member of your family to pay the Official Receiver the required sum (this has to be paid in one lump), the house will be transferred back on your behalf.
Now, a large sum like that is an awful lot to ask someone else to pay on your behalf and probably rarely happens but there is a more likely case scenario which is worth considering. For instance the assets, after costs may only be as small as, say, £4,000. This is something you really need to do your homework on.
Ask yourself. Is your property worth so much to you? e.g.
- It is the family home lived in for decades and you cannot bare to sell it
- The property has been completely renovated with you own bare hands and needs very little maintenance and is your dream house
- Would it be cheaper to find the £4,000 to buy back the interest in your property than trying to find expensive moving fees and stamp duty for another house?
This is something to think long and hard about. Ask yourself. Can I afford such a large mortgage? Is the housing market still falling, could I go into negative equity and, is it worth the large monthly outlay? Or would the mortgage payments be less than paying rent for instance?
The renting issue is a subject close to my heart and something I feel I need to address.
Although fortunate enough to be able to keep our property after bankruptcy because it had fallen into negative equity we eventually decided to move home a year later because our mortgage payments were so enormous. But we were in for a very nasty shock.
Firstly, we were unable to secure a rented accommodation until we had exchanged on our house sale. Apparently, these are the letting rules. This then gave me just two weeks to find a suitable property, before the completion of my own house sale.
This was then followed by the Credit Agency checks. Another week past. Time was now running out to find a home for my family. I truly believed I would be out on the streets. This was a very stressful time for all of us.
Obviously our credit rating had been severely damaged by the bankruptcy order. As discharged bankrupts we were unwelcome lodgers for some. Eventually we did find a landlord that was content to house us but at a cost of twelve months rent up front and another £1,800 deposit. Total £13,800. We did not have this sort of money and were forced to ask relatives for a loan – a humiliating experience. But it was a case of swallow your pride or live on the streets.
One year on renting and we were again asked to pay for financial checks, despite the letting agency knowing we were discharged bankrupts. Obviously we would not pass the credit check but a fee for both of us was still required. Permission was given for us to continue with the rental, but only on the basis that we found a guarantor whose earnings were thirty times the monthly rent.
Curiously, I was never once asked the question, have you been to prison for fraud, theft of deception. I haven’t by the way but I still would have liked to have been asked. Apparently being bankrupt is a crime, I feel.
So, if you do finally decide to fight for your home then make sure you keep up your mortgage payments and any other secured payment on your property throughout the duration of the bankruptcy order. With credit crunch Britain reducing its work force daily it is vital that you feel secure in your employment and can meet the monthly commitment.
Although mortgage lenders are under government pressure not to move in quickly and repossess properties there is no guarantee that they will behave in this fashion. If you do find yourself in difficulties then pick up the phone immediately and let them know. If you ignore them they will take legal action swiftly.
Can you advise on my husband’s company involvency and whether he should declare himself bankrupt or sell our home
Since the beginning of the recession enquiries in my husband’s company have slowly dried up (building trade)to the state now where he cannot trade and faces bankruptcy. He is 62 and finding it almost impossible to find a job. Along with directors guarantees for his business overdraft, the remaining equity in our jointly owned property is approximately £50,000. Would you advise selling the property so as not to become bankrupt, or tansfer the equity to me, depending whether I could afford the mortgage payments. We have considerably improved the property in the last 2 years, I myself took out a £7,500 loan for a kitchen, for which it is looking likely that I will be paying a kitchen in a house I no longer own. Can I offset this against my share of the equity ? I am also now paying the mortgage based on interest only. If my husband goes bankrupt will I be penalised for not paying a reasonable “occupany rental”, ie is £133.20 per month insufficient against one would pay in rental.
A lot depends on how big your debts are and how much of the £50,000 you will pocket. Do not forget that if you go bankrupt the Offical Receiver (OR) will take into account moving costs, estate agents fess, solicitors etc. This can substantially reduce the equity you have in the property once it is sold. You may also find your house is not worth as much as you think. People do tend to over-value their homes. As far as keeping your house this is a good thing. If your husband does go bankrupt the OR will ask him to get two estate agents to value your property so he can take the average to reach a price. From this moving fees etc will be deducted. He will then use the assets in your home to pay your creditors. Be aware the housing market is very weak at the moment and in a lot of areas outside London is still falling. This could result your mortgage being as much as the house is worth once moving costs etc are taken into consideration. If this is the case the OR will not have any interest in your proprty and as long as you can afford to keep paying the mortgage you will be able to stay in your house. Alternatively if the valuation only gives you say around £5,000 equity and you can afford to pay this the OR will be more than happy to accept a reasonable offer from you. Do not forget if your husband goes bankrupt all debts in his name will be wiped out which will probably give you a little more cash to play with. However the mortgage is a secured loan and if you are unable to meet the repayments the mortgage company will inevitably at some point repossess your property. Your husband’s share of the mortgage will not be wiped out in the event of bankruptcy I am not a lawyer or an insolvency expert and this is really a question for them. There is plenty of free advice available at places like National debtline http://www.nationaldebtline.co.uk and the Citizens Advice Bureau. I hope this helps
Just to clarify re whether you should put the house solely in your name. I think you will find that the house will have to be in your name for at least five years before the date of bankruptcy. Obviously people try and move their assets once they are facing bankruptcy and this is in place to ensure that creditors are not disadvantaged. Also consider if you have endowment policies it is worth surrendering them to pay of your debts as these will be snapped up by the OR as one of your assets