Debt help

Bankruptcy and your home

Before considering opting for Bankruptcy, it is important you consider how your property is dealt with.

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 property250,000
Deduct balance due on Mortgage(175,000)
Net Equity75,000
Less Spouse’s Share(37,500)
Your Share of Equity37,500

Calculating your share of equity can be more complex especially if the property is in your sole name. Your partner maybe entitled to a share of the equity (called beneficial interest) because they can demonstrate they have contributed to the mortgage and or upkeep of the property over a period of years.

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 was struggling 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.

Getting out of Bankruptcy

If you end up bankrupt because perhaps you have perhaps 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 bankruptcy in full. Alternatively, it is possible to get out of bankruptcy by putting forward proposals for an Individual Voluntary Arrangement “IVA”.

Mr T saved £25,000 opting for IVA out of bankruptcy

Mr T petitioned for his own bankruptcy following the failure of a printing business he had set up. However, within 6 months of bankruptcy his mother died leaving her mortgage free property to Mr T and his brother. If Mr T stayed bankrupt, all of his share of his mother’s property (after costs of sale) would have been paid into his bankruptcy. All funds paid into a bankruptcy attract charges by The Insolvency Service which can be substantial. These “realisation” fees are not payable if an IVA is approved and the Bankruptcy is cancelled. Mr T ended up saving circa £25,000 by getting himself out of bankruptcy and proposing an IVA which provided for his debts and the remaining costs of bankruptcy to be paid from his share of inheritance.

Clearly bankruptcy is complex and it is vital that you get advice before you opt for bankruptcy or if you find yourself bankrupt. The team at The Debt Advisor deal with complex cases such as the example above. Please do get in touch.

There are sources of free debt advice and services. You can find out more by contacting the Money Helper Website or 0800 138 7777.

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Bankruptcy Case Studies

Deborah had £290,000 of unsecured debt and had an IVA rejected by HMR&C
Michael and Laura
Michael and Laura took out a loan which was secured against their property.

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