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IMPORTANT - Voluntary repossession forms and bankruptcy

edited 22 April 2010 at 9:46AM in Bankruptcy & Living With It
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fermifermi Forumite
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edited 22 April 2010 at 9:46AM in Bankruptcy & Living With It
(Just a quick note for now. May expand this later depending on any comments people have.)

There have been a lot of people over the last year or two who have been wanting to have their properties voluntarily repossessed after they have been declared bankrupt.

In these cases many have had their lenders asking them to sign voluntary repossession forms that state that the bankrupt acknowledges liability for any shortfall that might occur.

DO NOT SIGN ANY SUCH FORMS AFTER THE DATE OF YOUR BANKRUPTCY ORDER.

Any liability for such a shortfall and associated costs is a debt covered by your bankruptcy.

It appears to be a common tactic now by lenders to attempt to mislead you by stating that::

a) You will be liable for the shortfall whether you sign or not.
b) They cannot voluntarily repossess without the forms being signed.

c) If they have to repossess through the courts, any costs they incur will not be covered by the bankruptcy.


However, these are:

a) Outright lie. If they do this in writing, report the lender to the FSA/OFT.
b) Again, a lie. You can write your own letter surrendering the property. That is acceptable, and many people here have done so and "reasonable" lenders have accepted.

c) When the property is sold, these costs will fall into your bankruptcy. Beforehand, the lender can ask you to pay, but cannot force you too, even through the courts.


Remember, that if a lender refuses to voluntarily repossess and insists going through the courts, then that will not prevent any future shortfall going into the bankruptcy.

Liability for future shortfalls is a bankruptcy debt under the Insolvency Act 1986.

Insolvency Act 1986

382. "Bankruptcy debt", etc

(1) "Bankruptcy debt", in relation to a bankrupt, means (subject to the next subsection) any of the following -
  1. (a) any debt or liability to which he is subject at the commencement of the bankruptcy.
  2. (b) any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy,
  3. (c) any amount specified in pursuance of section 39(3)(c) of the Powers of Criminal Courts Act 1973 in any criminal bankruptcy order made against him before the commencement of the bankruptcy, and
  4. (d) any interest provable as mentioned in section 322(2) in Chapter IV of Part IX.
From the Insolvency Service:

If my house is sold sometime after the bankruptcy order is any shortfall on the mortgage still a debt in my bankruptcy?

Question: If my house is sold sometime after the bankruptcy order is any shortfall on the mortgage still a debt in my bankruptcy?

Answer:
A debt which is secured by a mortgage or a charge on a property is still a provable bankruptcy debt. The mortgage loan company is "a secured creditor" which means they have rights over an asset, the house, and can require the asset to be sold to pay their debt. These rights are not affected by the bankruptcy. On the making of a bankruptcy order the mortgage loan company could make a claim in the proceedings but, unless it wished to give up the security, could only claim for any (estimated) shortfall.

If you continue to live in the property it is likely that you will continue to make payments to the mortgage loan company to avoid the property being re-possessed. When the property is eventually sold any shortfall to the mortgage loan company is still a provable debt in the bankruptcy, even if you have been discharged, as you are released from the debt on discharge.

Your bankruptcy does not affect the obligations of any joint owner who has not been made bankrupt to repay the mortgage loan debt or any shortfall, as they are still liable for the whole of the debt.

After the date of the bankruptcy order the mortgage loan creditor may ask you to sign a "deed of acknowledgment" of the outstanding debt. If you have signed such a deed the mortgage loan creditor can take action against you to recover any shortfall following the sale of the property.
*********************************

NOTE: Signing such forms before the date of your bankruptcy order does not effect your future liability. The original mortgage/loan shortfall liability and any that "might" have been acknowledged by signing such a form prior to the BR order, is a liability that is covered an extinguished by the BR order.
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  • fermifermi Forumite
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    And any court costs for doing so will go into your BR as well, just in case they claim otherwise;)

    Just to be clear, as i think i have seen that claimed once or twice

    Indeed. I think it sort of says that above, but may reword it to make it clearer later.

    I think MicheH may have a few comments on this thread. ;)
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  • MicheHMicheH Forumite
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    Thank you fermi, a subject close to my heart. I know mortgage lenders lie, use trickery and behave in a 'bullying' manor.

    I am not a strong person at all, infact I do as i'm told, totally gullable and believe that everyone is fair and act for the greater good. Thank goodness I was aware of fermi's words above!

    To back up what fermi has said I got my house repossessed without signing the deed of acknowledgement.. but it was one hell of a fight.
  • MicheHMicheH Forumite
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    :rotfl:fermi, oh yes.. should I tell the story about being told to scribble out the bit about liability or maybe the story where I was laughed at when I said I would seek legal advice 'ha, you're bankrupt, you couldn't afford that' MicheH: ever heard of legal aid?!
  • fermifermi Forumite
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    MicheH wrote: »
    Thank you fermi, a subject close to my heart. I know mortgage lenders lie, use trickery and behave in a 'bullying' manor.

    I am not a strong person at all, infact I do as i'm told, totally gullable and believe that everyone is fair and act for the greater good. Thank goodness I was aware of fermi's words above!

    To back up what fermi has said I got my house repossessed without signing the deed of acknowledgement.. but it was one hell of a fight.

    Thanks. I was very aware of your story when posting the above.

    If anyone has suggestions for improving/clarifying/expanding/correcting the advice in the initial posts, please say.

    I would sticky this for a bit, but while it's on the front page, these things are often more "visible" to people in the main list of threads. Beyond that, I'll have to have a think............
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  • Can we add to it, for people who are not yet BR, explaining that it is then and only then ok to sign the form for liability of the shortfall? :) If this would be any help too?
  • fermifermi Forumite
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    Sammy3008 wrote: »
    Can we add to it, for people who are not yet BR, explaining that it is then and only then ok to sign the form for liability of the shortfall? :) If this would be any help too?

    Will add that in a bit. :) Thanks.
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  • fermifermi Forumite
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    So while it is OK it would be worth mentioning, even if they word it to make it sound as if your liable after.......your not:D

    Indeed. The law is clear.

    There is nothing they can write in the original mortgage/loan agreement or any document signed before the BR order, that can prevent the BR from covering your liability.
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  • MicheHMicheH Forumite
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    fermi wrote: »
    Indeed. The law is clear.

    There is nothing they can write in the original mortgage/loan agreement or any document signed before the BR order, that can prevent the BR from covering your liability.

    That is very good to know. I signed my one sentance letter with my signature and driving licence to verify. I do worry about them fiddling with my signature but they already have it on the original paperwork. I have OR emails, threads on here, solicitors details all backing that I did not and would not sign that deed of acknowledgment just in case because during a further call with mortgage company I was told that they had been in receipt of the DOA, I corrected and said it was a 1 sentance letter. He said on my notes it was the deed of acknowledgement. Very scared about that and plus I received a letter warning me that they may contact me for payment of shortfall.

    I have to be strong and not worry about these mind games they're still playing.. the only way they could take me to court for shortfall would be through a forged document and hopefully that would never be able to happen.
  • fermifermi Forumite
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    MicheH wrote: »
    I have to be strong and not worry about these mind games they're still playing.. the only way they could take me to court for shortfall would be through a forged document and hopefully that would never be able to happen.

    They would have to be very very very stupid to try.

    Would make a good newspaper story.......
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  • Hi there

    Hoping someone might be able to help me relating to this thread. Myself and DH have just gone br - family home is mortagaged but in a lot of neg equity. We don't know whether to buy back the BI or not as our fixed rate mortgage ends next month and we will be at the mercy of the SVR for I guess 6 years.

    My query is, is if we are going to do vol repossession/repossession do we need to do this before we are discharged i:e within the year? Or if we dither about with it and leave it till after discharge could we then be facing a second bankruptcy when there is any shortfall from a sale after any possible repossession?

    It's just that it's taken us 2 years to decide whether to go br, we can afford our mortgage just now...but it would be tight once interest rates start to rise which they inevitably will do at some point.

    Thanks in advance for your help

    Rach
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