Handing back the keys and going bankrupt. Is it really the best option?

fimonkey

Not me of course (any regulars to this baord will know I'm sat firmly on my very twitchy fingers at t'mo).

A friend and her husband borrowed 8K last year on an unsecured loan for a deposit on a bunglaow that needed re-furb (In Thetford area). They bought the Bungalow in June 2007 for £120K, so their mortgage was for £112K. They borrowed a further 4K on credit cards to do the place up, with the intention of selling afterwards and making a profit (so now owe 124K).

Their mortgage is a joint mortgage, capped rate with no early exit fee, but they're due to go onto SVR in next 4 months unless they can re-mortgage (but that's not looking too easy as they've both recently become self employed and have no past earnings to show.

However, 6 months ago bungalow went up for sale for £130 and they both moved to new self employed jobs in Wiltshire, so it's been vacant since then. Of course no offers, so they dropped price to 125K, but still no interest.

They can't move back in and live in it as their jobs are too far away, they can't drop the price anymore without then having to owe money either, and they can't let it out (They've tried, no interest).

So they're talking about transferring the mortgage to one of their names only (i.e by telling bank they're splitting up) and then the one who's name is on mortgage and credit cards is planning to hand back the keys to the bank and declare themselves bankrupt. Apparently this means they won't be able to obtain credit/have a bank account etc for 7 years, but they think it's OK as the other (non bankrupt) one will be able to have a bank account etc.

IS this really their best option? Personally I'm a bit aggreived that it can be so easy to just wipe out your debt and not take responsibility for it, but they claim they have no other choice.

What are your thoughts and advice on this please?

GDB2222

Why would the bank relinquish their hold over the other borrower?

JDMYOFAN

That's a lot of trust in a relationship...

SquatNow

It is that easy to just wipe your debt out, however, just not in this case.

You can't just "transfer" the mortgage to one person.

That person would have to apply for a mortgage on their own... which in this case they wouldn't get.

Your friends are stuck with the house.

Best bet is to drop the price so that it just covers the mortgage and hope it sells.

If is does, they'll be left with the unsecured debts.

moneysavinmonkey

even if the mortgage company agreed to transfer the property to the one person and the plan 'worked' they'd still be pretty screwed...

ok one person has a clean record, but the other doesn't! then next time they came to buy they would only be able to get a mortgage based on one persons salary, and the one person would be the only one able to get credit etc. I believe sharing an address + being financially linked to a bankrupt can also affect your credit rating.

- - - - -

Also your figures don't add up.. you said their mortgage was £112k and then have £4k credit card debt (not secure) - the total debit is therefore £116k.

They should drop the price quick and they could still sell and maybe just walk away with the 4k credit card debt - which is hardly worth going bankrupt over is it??

Generally they are asking to much - £125k is more than they paid.
The price needs to be less than June '07 - latest Halifax report said prices were back to 2006 levels. - I know they have spent 4k but that's not very much so i'd guess just cosmetic decoration only which doesn't really add any value.

SquatNow

Take the 2007 price.

Knock off 12%.

That's how much it's officially worth.

For a quick sale, knock off another 10%. That's what you'll get.

Can you get another unsecured loan to enable you to lower the price some more?

moneysavinmonkey

another point: if they are self-employed, bankruptcy could affect their business

h. Your business

If you are self-employed, your business is normally closed down and any employees are dismissed. Any business assets will be claimed by the trustee unless they are exempt and you will have to give the Official Receiver all your accounting records. You are still responsible for completing all tax and VAT returns. Your employees may be able to make a claim to the National Insurance Fund for outstanding wages and holiday pay, payment in lieu of notice, and redundancy. Employees can claim in the bankruptcy for any money owed that is not paid by the National Insurance Fund.

http://www.insolvency.gov.uk/guidanceleaflets/guidetobankruptcy/guidetobankruptcy.htm

Premier_2

I don't think you, ... sorry 'your friend',... has properly thought this scam through, do you?

mlz1413

If your friends are both self employed then why are they commited to work in Wiltshire? Surely if they are truely self employed one or both of them could work from where this house is?

If they are on contract work then what guarantee do they have of work when the contract ends?

I think your friends have gone into a get-rich-quick plan without any contingenty fund or plan. IMO they should just sell for what they can and accept the loss as a learning curve, better than ruining your credit rating for 7 years when they could probably pay the loss off in less than that.

Inactive

It was a badly planned business venture that relied on a rising housing market, sadly it went the other way, so just make the best of a bad job, sell it for it's real value and move on.

Dithering_Dad

Bought for £112K + 8k Borrowed Deposit + 4K to do the place up = £124k.

I'd suggest they sell it for £124k and break even. If they have to sell it for the original £112k, they would only be standing a loss of £12k - surely not enough to justify one of them going bankrupt for, possibly losing their self-employed status, having every financial part of their lives examined by the Official Receiver (which would include seizing any assets) and then having a bad credit record for a futher 5 years.

Given that they have two incomes, I can't imagine that it would take them more than 6 years to pay off this debt.