To Vol Repo or not Vol Repo... that is the question

TheCat_2

I am a current bankrupt looking for property advice with a view to ensuring I finish my bankruptcy fully debt free

Bankrupt Jan 2010
Auto-discharge due 18/01/11

The property my wife and I live in is in my sole name and is currently estimated to be in approx £12k negative equity.
Mortgage payments are being met but I am on a suspended repossession order.
My wife does not like living where we are and is suggesting we rent somewhere else or she buys a property in her name after my discharge.
If we found an alternative property and then I voluntary repossessed my flat would the shortfall amount fall inside my bankruptcy and would this be the case if the voluntary repo was done 'after ' my auto discharge as...if I am right in my interpretations... any residual debt - then unsecured by default - would be 'provable' to before the bankruptcy commenced?

I'm hesitant to contact my OR as I'm 40 days from AD and I don't want a potential new £12k debt coming his way giving him fresh enthusiasm for establishing an ipa etc in the home straight...

Two4Tuesday

If your property was repossessed then the shortfall amount would fall inside your bankruptcy provided that you do not sign any document accepting responsibility for the shortfall. Otherwise that would become a new debt.

TheCat_2

Two4Tuesday,

Thanks for the reply - out of curiosity I posted the same question last night on CCCS' website.

Their email reply today said I would have to speak to OR to get any shortfall included and would have to initiate voluntary repo before my discharge as it would be a 'new' debt if it happened after discharge.

Even though you explained it as i thought, based on CCCS reply I'm worried now that I have 40 days to find a new house if I don't want to be saddled with my current negative equity after discharge

Can you (or anyone else) shed a bit more light on the subject

Thanks in advance

TheCat_2

Sorry to harp on and bump my own thread but I've been doing a lot of googling after CCCS said the shortfall would be a new debt if I VR'd after AD....

Ive just found this thread on Yahoo and it says much the same
Best Answer - Chosen by Asker

Hi,

To answer your first question: You should inform the mortgage company that you intend to offer them a Voluntarily Repossession on your property, but you should only notify them once you are ready to vacate the property. If you telephone them they should be able to inform you of how their VR process works, but be aware that it may involve you delivering your keys to the local branch, which is not a particularly pleasant prospect.

How a bankruptcy will deal with your property shortfall will depend on the timings of when you go for the VR and when you declare yourself bankrupt.

When you declare yourself bankrupt, you will need to list all your known liabilities and your potential liabilities such as the property shortfall. But the shortfall only becomes a potential liability when you have handed the keys back. i.e. you know you owe a degree of shortfall to the mortgage provider, but you don't actually know how much it is at the present time.

In this situation the bankruptcy will deal with the liability alongside all your other unsecured debts as and when it becomes created by the sale of the property, whenever that may be, even if you are discharged from your bankruptcy at that stage.

By the way, you will be automatically discharged from your bankruptcy after 12 months from your petition date, but your bankruptcy term can be reduced in certain circumstances, so please be aware of this.

Now, if, for whatever reason, you go for the VR after you have been discharged from you bankruptcy it is only at that stage the debt is created, so you would indeed need to declare yourself bankrupt again to deal with the shortfall.

It goes without saying, you should avoid this if at all possible.

By the way, just to straighten up on some of the bankruptcy advice above: Any payments you are obliged to pay into a bankruptcy would be as part of an IPA or I.P.O. and would only last for 3 years - not the 7 years as stated above, and what's more they would only be expected if it could be proved by the Official Receiver or Trustee that you could afford to make contributions in the first place. If you cannot afford to make any payments in to your bankruptcy, then your obligations to do so will cease when you are discharged from your bankruptcy.

I hope this information helps you at what is obviously a very difficult time.

Good luck.
Source(s):
http://www.my-iva-adviser.co.uk/what-is-…
1 month ago Report Abuse
Asker's Rating:Asker's Comment:
Very constructive, clear and concise - thank you.'

I'm not disputing what Two4Tuesday has already said but I'm trying to get a definitive answer as I don't want to spend all of Christmas house hunting but on the flip side I don't what to come out of bankruptcy looking to move and potentially ending up with a brand new £12000 shortfall to cover.

2nd, 3rd and 4th opinions most welcome...

Two4Tuesday

I have to admit that my information is based on what I have read on this and other forums, including the Consumer Action Group. I have not personally been through this yet (I am a discharged bankrupt and my jointly owned property is on the market but it should have equity in it - in the event that it sells for less than the mortgage leaving a shortfall, I am not planning to sign any documents at all).

I hope that you do find a definitive answer, and most importantly that you don't end up saddled with the shortfall debt, whatever action you take.

IF

Two4Tuesday wrote: »

If your property was repossessed then the shortfall amount would fall inside your bankruptcy provided that you do not sign any document accepting responsibility for the shortfall. Otherwise that would become a new debt.

T4T, This is also how I've understood it too


Your home/property.

• What will happen to my home? (IS) (pdf)
• FAQ - Bankrupt's Home under the Enterprise Act (IS)
• OR's Case Help Manual - Family Home
• If my house is sold sometime after the bankruptcy order is any shortfall on the mortgage still a debt in my bankruptcy?
• Charging orders in the county court - National Debtline factsheet (useful if a creditor is trying for a CO before your bankruptcy)

TheCat_2

Thanks Two4Tuesday, and good luck with the property sale..

I'd hate to think that after signing up to a bankruptcy and going quietly through the required 12months it could all end with a fresh start of a huge debt.

Also the prospect of having to redeclare bankruptcy to avoid the shortall after my imminent AD fills me with dread more than 40days of frantic house hunting over the Christmas period.

Also if I had to redeclare bankruptcy to get the shortfall included that gives the OR another 12m of SOA/IPA options...with the newer nil allowances ....unless they would sanction an ED due to the previous bankruptcy.

It's all if's and but's - I hope some legal eagle is along soon so I can go to the OR armed with the correct facts .... I haven't spoken to him once since my initial interview, and for whatever reason it all seems daunting picking up the phone to him..

Has anyone got experience of dealing with their OR during their bankruptcy - are they there to help you or are they looking to trip you up ....I've just got the feeling that if I can keep off his radar things will go smoothly .....so far I've been right but I wonder what mood he'd be in if a couple of weeks before AD I dropped a new £10,000-£15,000 addition into his figures.....

Two4Tuesday

Thanks, TheCat

I don't really care what happens to my old property any more - my ex-wife still lives there. Ironically we had enough equity in the property to pay off our debts in full, but my wife refused to cooperate, believing that she could keep the house (as she planned to keep custody of our children) and that I'd be stuck with the debt.

If we had sold the house and cleared the debts, my dad would have let us live in one of his houses which he currently rents out.

She's now upset that the house sale is being forced by the Trustee who will take my 50% of the equity. In a strange twist, she considers that I got off scott-free and that she is the one paying for my debt

Sorry to rant, it's good therapy for me

KITTENPOP9

Hi The Cat, I was also very interested in an answer to this question as myself and hubby are pretty sure we'll be doing a voluntary repossession at some point next year and as we will be automatically discharged in March we were very concerned that if we proceeded with the vol repo after this date then we too would be made liable for any shortfall!!! I have just come off the phone to the OR and she confirmed that even if we start voluntary repossession proceedings AFTER our discharge then we WILL NOT be liable for any shortfall and that it will indeed fall into our bankruptcy! Feel so relieved hearing that.....hope it helps you too x

TheCat_2

Thanks KittenPop9, both for taking the time to reply and for lifting a weight off my shoulders....

CCCS initially got me worried with their reply but since then everyone has contradicted what they said.

I posted on another forum yesterday too and got a full explanation so I'm comfortable now that I do not have to do anything hasty to legitamately avoid any potential shortfall (: (:

I'll copy/paste the other forum post here in a bit

TheCat_2

Extract of a reply posted to my question in another forum, which I think explains the relevant points comprehensively...

'Hi all, this may be of help:

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.

You may also find it helpful to read the Insolvency Service publications titled 'What will happen to my home'




Big Al
Insolvency examiner with the Insolvency service from April 2008 - July 2010.

If you need help completing SOA's(statement of affairs) or PIQ's(preliminary information questionnaire) if you've been declared bankrupt, or anything else and you're within 30 miles or so of Warrington, then please contact me via my contact details in the expert page for futher details" '