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Bankruptcy

Bankruptcy and your home

Before considering opting for Bankruptcy, it is important that you consider how it may affect your property.

Your Share of Equity

Your share of equity is calculated by deducting the balance of your mortgage from the current value of your property. If the property is owned jointly, then generally it is assumed that you are entitled to 50% of the equity. See example below:

 

£
Current value of property 250,000
Deduct balance due on Mortgage (175,000)
Net Equity 75,000
Less Spouse’s Share (37,500)
Your Share of Equity 37,500

 

Calculating your share of equity can be more complex especially if the property is in your sole name but you and your partner have both contributed to the mortgage and upkeep of the property. Your partner might be entitled to a share of the equity (called beneficial interest) if they can evidence their contribution. If in doubt it is wise to get advice.

If you share of equity is less than £1,000, your equity will be excluded but may have to pay for a solicitor to help you get the Bankruptcy Restriction removed from your property.

Trustee’s Duty

The Trustee in Bankruptcy is obliged to recover a sum of money equal to your share of equity in the property. A Bankruptcy Restriction will be added to the property’s entry on the land registry and you will not be able to sell or refinance your property without agreeing a deal with your Trustee. The registration can be removed if you can demonstrate you do not have an interest in the property.

The Trustee has 3 years to deal with your equity in your property. If for some reason your Trustee struggles to get you to co-operate with either introducing a sum in lieu of your equity or selling the property, they can apply to court for a possession order and ultimately you could be evicted from your property. So dealing with a Trustee quickly and promptly in relation to your share of equity is vital.

Bankruptcy and Renting from a private landlord

If you have rent arrears, these will be included in your Bankruptcy. The landlord will not be able to pursue you for the rent arrears but they could obtain a court order to evict you. If you build up arrears after the date of bankruptcy, your landlord will be able to evict you and pursue you for the rent arrears. Your Trustee will not allow you to pay rent arrears out of your income and expenditure as the debt will be included in your Bankruptcy.

Getting out of Bankruptcy

If you end up bankrupt perhaps because you have ignored important paperwork or not understood the seriousness of your situation, it is possible to get out of bankruptcy if you can pay your debts and the costs of the bankruptcy in full. Alternatively, it is possible to get out of bankruptcy by putting forward proposals for an Individual Voluntary Arrangement “IVA”.
Bankruptcy is complex and it is vital that you get advice before you opt for bankruptcy or if you find yourself bankrupt.

There are sources of free debt advice and services. You can find out more by contacting the Money Advice Service or National Debtline on:

Money Advice Service on https://www.moneyadviceservice.org.uk/en/articles/where-to-go-to-get-free-debt-advice or 0300 500 5000 (8-8 Monday to Friday, 9-1 on Saturday).

National Debtline – 0808 808 4000 (9-8pm Monday to Friday, 9.30-1 on Saturday). Alternatively you can visit their website.