Bankruptcy and Your Home
If you own (or jointly own) your home, mortgaged or outright, your interest in it forms part of your estate and may have to be sold to go towards paying debts.
If the property is completely in your name, or completely in your spouses name, typically 50% of the equity in a matrimonial home is available to the Bankruptcy Trustee.
Buying a property and putting it in your spouse’s name on the off-chance you may one day be made bankrupt does not protect it from the Trustee.
In the case where a property is jointly owned, the share owned by the parties not subject to bankruptcy proceeding can’t be used towards the bankruptcy. However, this does not stop the Trustee from forcing the sale of the property to get hold of your share.
A spouse, other relative or friend can buy your interest in the home from the controlling Trustee. This prevents the future sale of the property by the Trustee.
Common Misconceptions about Bankruptcy and Your Home.
“I put my home into my partners name years ago, it will be excluded from the Bankruptcy”
You’ll need to prove that your partner paid the full value at the time of the sale and has since paid the mortgage in full. You will also have to account for the money you received from the sale.
“I have a wife and small children, they can’t take away my house”.
They can and they will. If a spouse and/or dependant children are living at the property, it is possible for the sale in the bankruptcy to be delayed until after the end of the first year of bankruptcy. This allows for time for other housing arrangements to be made.
Stopping you Selling your Home.
The Trustee can register a caution at the Land Registry, preventing the home from being sold without their permission.
Under the Enterprise Act 2002 the Trustee has a maximum of three years to deal with a property or risk it reverting back to the Bankrupt. However, the three years will be extended if the sale is obstructed.
If the Trustee does not or cannot presently sell the home, they may obtain a charging order. This is like securing the property against the debt. In which case, your interest in the property will be returned to you, but the legal charge over this it remains. The value of the charge is your percentage interest in the property. This sum must be paid from your share of the proceeds of sale of the property.
If a Charging Order is placed on the property, you will benefit from rises in the property’s value between that time and the time of the sale.
If no Charging Order is in place, your percentage interest in the will continue to belong to the Trustee, including any rise in the property value. Therefore even if the home is sold some time after discharge from bankruptcy, the increase in value will not go to you.
Your Home and an IVA
Can I do an IVA without affecting my Property/House ?
In some circumstances your home may be excluded from the arrangement. However, if you have equity in your house, this will be taken into account when making an offer to creditors. You may have to release some of the equity in your property at some stage during the IVA.
Your creditors are only going to approve an IVA if they consider they will get more money back than via bankruptcy. If the equity in your property is more than your unsecured debts, then they could get it all back by bankrupting you, and forcing you to sell your home.
How your homeowner status effects yout IVA propsal is complex and depends on many factors such as
- Your current mortgage repayments.
- How much of the property is yours in the case of joint ownership.
- The amount of equity in the property.
We get more questions above homeowership and IVA than anything else, so please call us for free advice of how this may impact your decision to do an IVA.
How much equity will I have to release from my property?
There is no exact answer to this as it depends on personal circumstances. As a rule of thumb, equity is released such that increased mortgage payments once the IVA is completed are no higher than the IVA payments were.
What To Do Next
If you are concerned about the prospect of losing your home in bankruptcy then CALL US or submit the INSTANT ADVICE form for Immediate Free Advice.
If you can avoid bankrupcy by doing an IVA instead, you have a better prospect of keeping your home.