My Property and Bankruptcy
In this post I will give you a brief outline of what it means to go bankrupt and how is will affect your home. If you do go bankrupt, then every asset you have will have to be included in bankruptcy. So before you even consider going down the bankruptcy route, you have to consider if there are any assets that could be at risk if you do go bankrupt. Also, if during the period of your bankruptcy someone dies and leaves you property or sum of money, then this too will become part of the bankruptcy.
Is my House at Risk in Bankruptcy?
If there is any equity at the start, or within the duration of your bankruptcy, then yes, you could be forced to sell your house as part of the bankruptcy proceedings. This is why it is so important to get as much advice as possible before you consider going bankrupt!
What Happens to My House When I go Bankrupt?
When a person is made bankrupt their case will be administered by the Official Receiver (OR). It is the OR’s responsibility to sell any capital or assets that the bankrupt may have and distribute any proceeds to the creditors. The most common assets is usually the bankrupts home!
Normally, if a property is involved the OR will hand the case over to an Insolvency Practitioner (IP), especially if there is any equity in the property. As a result the IP then becomes the trustee in bankruptcy.
What is the Equity of a Property
Equity is the financial value of the proper. So how is the equity of a property calculated? The value of a property is usually calculated by obtaining three estate agent valuations, then the average of these three valuation is assessed as being the property value. Then from this value any outstanding mortgages and/or charges against the property are subtracted from the value of the property. What is left is called the properties equity. So, if the property is sold, then what is left over from the sale can then be distributed among the creditors. Oh yes, and lets not forget that the IP will also get a nice fat payment for their work.
Appointment of an Insolvency Practitioner
Once appointed the IP takes over the role of the OR. Both the OR and the IP have the same legal powers in relation to the bankrupts home and any other property the bankrupt may have an interest in.
Never assume that the trustee will have no interest in the property. Even in circumstances where there is little or no equity, it is still necessary to purchase back the bankrupt interest. This can be done for as little as £1.00 (plus legal fees) via the trustee. This should be dealt with immediately after the start of bankruptcy.
Bankruptcy and Sole Ownership of a Property
If the person going bankrupt solely owns the property then the trustee will place a restriction over the property through land Registry. This means that the bankrupt is no longer the legal owner of the property and therefore does not have the right to sell it. Only the trustee can now sell the property.
Bankruptcy and Joint Ownership of a Property
If the person going bankrupt jointly owns property, then the trustee is entitled to the bankrupts beneficial interest in the property. This is usually 50% of the equity, however, the property remains in the legal ownership of the bankrupt.
Others with Beneficial Interest in Your Property
Someone who has lent money for the purchase or renovation of the property, although they appear to have no legal title over the property, may have acquired a beneficial interest in the property. If this is proven it may also be taken into account in any negotiations with the trustee. So, if you are able to prove this, then you need to tell the OR or IP immediately!
The trustee will apply for a restriction over the jointly owned property, guaranteeing that the trustee will receive the bankrupts beneficial interest if the property is sold.
Further Debt or Bankruptcy Advice
Before you even consider going bankrupt, get as much advice and information as you can. There may be companies out there that can offer to help you through a bankruptcy, but do not just believe what they are telling you! Research, research, research, do as much research as you can before going down the bankruptcy route. Also, if you are offered and IVA instead, treat this with caution, as your house could still be at risk. I would also suggest getting hold of the Debt Advice Handbook (click the link to view), as that is packed with information relating to all aspects of debt. This book may also help you to decide which debt solutions best fits your needs.