Mortgage and Beneficial Interest - The Future

neuronusmaximus

Hi. Does anyone know the answer to this please? If you become bankrupt and buy back your property using the beneficial interest rule - just how much does it help your credit rating both during and after discharge? It technically means that you are paying off your mortgage (no late payments at all before!) whilst bankrupt and then after discharge if you are in a fixed term and so does it immediately help repair your credit rating for everything, does it just help with future mortgage applications or does it simply make not difference whatsoever?

Thanks in advance....This forum is very helpful to a lot of people.

philnicandamy

while the bankruptcy sits on your credit files it's really only damage limitation it'll not make that much of an impact...although every little helps

Darnit_2

I have another question on the same subject if you don't mind mehijacking your thread? We have been offered the opportunity to buy the BI for for £1 plus fees. What happens if we buy it back, then can't pay the mortgage? Does it still get written into the original BR, or do we become liable for any shortfall again? Not sure if we are just buying back the "benefits" as suggested, or the whole liability again.

peachyprice

As long as you don't re-mortgage, even with the same provider, any shortfall from repossession in the future will still be included in your BR.

In answer to your first question, it makes no difference to your credit file whether you buy the BI or not as long as you keep paying the mortgage. You're not buying the house back from the OR, just the equity or rights to future equity.

Radiantsoul

peachyprice wrote: »

As long as you don't re-mortgage, even with the same provider, any shortfall from repossession in the future will still be included in your BR.

Are you sure?
In the short term I agree, but I wonder if it really last forever. In the case of a interest only mortgage it would seem to offer a massive advantage to the borrower.

peachyprice

Yes, it does last forever.

A debt provable at the time of bankruptcy remains so forever more, there is no expiry date.

The lender also has a massive advantage over non-secured borrowers which they chose to retain. They would have been invited to relinquish their secured status, have the property repossessed and join the ranks of the unsecured, they chose to keep their secured status, and take the risk that goes with that.

As soon as that debt is no longer secured on the property through repossession they loose their status and the debt is treated like any other proveable debt that existed at the time of BR that may come out of the woodwork in the future.

debtinfo

Peachy is correct but just to expand a bit. The debt when a shortfall happens comes about because of an obligation that was signed prior to the bankruptcy order, namely when you signed the mortgage papers.

now the insolvency service dives this definition of a bankruptcy debt

40.7 Bankruptcy debts
"Bankruptcy Debts" URL="http://www.insolvency.gov.uk/freedomofinformation/technical/TechnicalManual/Ch37-48/chapter40/part1/Notes/Notes.htm#8"]Note 8[/URL are defined as:

• Any debt or liability to which the bankrupt is subject at the commencement of the bankruptcy,
• Any debt or liability to which the bankrupt may become subject after the commencement of the bankruptcy (including after his/her discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy,
• Any amount specified in any criminal bankruptcy order made prior to the commencement of the bankruptcy. (The power to make criminal bankruptcy orders was abolished by the Criminal Justice Act 1988 so it is unlikely that the official receiver will come across such debts.)
• Where a bankruptcy debt bears interest, the interest due up to the date of the commencement of the bankruptcy URL="http://www.insolvency.gov.uk/freedomofinformation/technical/TechnicalManual/Ch37-48/chapter40/part1/Notes/Notes.htm#9"]Note 9[/URL.

as you can see because the obligation was signed before the bankruptcy order then any resulting debt would fall into the bankruptcy, there is no time limit to this.

BUT

At any time after the bankruptcy commences you sign a new agreement then that starts a new obligation/debt. this would include voluntary repossession documents/deeds of acknowledgement, a deed of acknowledgement when you buy the BI, remortgage deeds etc

Angiepange

Debtinfo

Can I just clarify something with you if you dont mind. Am I right in thinking a deed of acknowledgement is not the same as a Deed of Assignement?

We bought the BI in our property and signed a deed of assignement (the OR assigned all the interest and rights in or to the property to us). If we are not successful in our application for Govt Mortgage Rescue Scheme we will be re-possessed and obviously face a shortfall which I am presuming will fall into our BR as long as we dont sign anything otherwise.

Am I correct, just having a stress moment, sorry!! Angie x

debtinfo

You are correct they are not the same, The deed of assignment is between you and the OR, The deed of acknowledgement is between you and the mortgage companies and says somethin to the effect that you now agree that you are liable for the debt again.

some mortgage companies try to get you to sign one during the BI process.

Angiepange

Thanks so much for putting my mind at rest Debtinfo.

And sorry to neuronusmaximus for jumping in on your thread!!

Darnit_2

Thanks folks, glad I raised that one. I just can't bear the thought of having to do it all again in the future if things go wrong somewhere. Not likely to ever happen but you just don't know what is around the corner. I won't be signing for any new debts ever, except maybe if i pay some mortgage off and down size to a cheaper house/mortgage, and I won't do it lightly!