Info on housing implications when bankrupt

peanutbuttercups

I hope someone can help me understand.
A family member has asked me for financial help, saying they need a deposit for a flat so thay can get a rental agreement in place before their IVA is agreed or before they go bankrupt. They live in a mortgaged house at the moment. Their mortage is the same money as a monthly rent. Their house is negative equity. What's the implication to getting the IVA or bankrupty agreed if they stay in the house and don't get a rental agreement. They can't seem to explain to me or I can't seem to understand why they can't stay in the house. They then wouldn't need a deposit. I haven't got loads of money and think I am only getting half the story so I need to be careful that I can service my debt too.
They say it's to do with how much they will be allowed in the budget planner to spend on accomodation if the rental agreement is already signed.
If anyone can explain I would be most grateful.
Many thanks.

freddy911

The only benefit would be if they want to include the mortgage debt, ie any secured loans or negative equity in the BR, they cannot do this unless they give up the house. Other than this there wouldnt be any benefit to them, unless they are worried they may lose the house anyway and then find it difficult to rent after the BR. You need to be carefull as it would be difficult to get any money back they borrow from you, the OR will not allow them any extra cash to pay you back. How will they manage this? Can you trust them?

Hope this helps

Ineedaname

If their house is in negative equity and the mortgage and rent are the same then I don't see much value in moving at this time. If they go BR they are unlikely to lose the house and will be allowed the mortgage repayments and buildings insurance in their allowances.

So it seems the issue is they want shot of the house.

Any rental allowance in BR would be for a reasonable rent in their area for a house size within their needs. In other words, if they are a family of 2 adults and 2 children their needs are for a 2 or 3 bedroom house, depending on age and sex of the children. If they are planning to rent a bigger place than they need in the hope that once the agreement is signed the OR will allow the rental value, they should be warned the OR may not allow them the full rental price in their allowances if they are over-housed.

Your friends really need to take advice from one of the free debt advice charities listed in the Look Here First thread. They'll go through all your friend's finances and options.

Do be aware though that any new debt your friend takes out prior to going BR should legally be included in the BR, which means you wouldn't get your money back. Some people do circumvent this by paying back individuals after discharge, but it's not advised as ALL debt incurred prior to BR is included, whether listed on the forms or not. So I'm not sure how you'll get your money back.

Having said that, if your friends truly want to move into rented and let their house go, the general advice on here is to stop paying the mortgage, any secured loan and all unsecured debt, in order to save up deposit/first month's rent and also the BR fees.

But they do need advice first on the best route to resolve their financial problems.

kepar

If their house is in negative equity and the mortgage and rent are the same then I don't see much value in moving at this time. If they go BR they are unlikely to lose the house and will be allowed the mortgage repayments and buildings insurance in their allowances.

So it seems the issue is they want shot of the house.

That is probably it INAN, the bankruptcy will give them the chance to get out of the house, even if they are in negative equity and can afford to stay. They may feel that they will be trapped especially if interest rates rise in the next few years, house prices are static and in some cases falling. There may be a lot of work need doing, who knows but bankruptcy will give them the chance to get out. Then maybe 6-10 years later they may be able to buy again.

Ineedaname

But we don't know that for sure Kepar, which is why I discussed different avenues to cover all bases.

Unless the 'friend' were to sign up here and clarify it's best to offer several points of view for the OP to be aware of all implications.

silvercar

Unless you can afford (and are willing) to give this money as a gift, I wouldn't consider it.

peanutbuttercups

How much do you have to owe to get an IVA? Is it £15001? I've seen that figure around but don't know in what respect!
Thanks

peanutbuttercups

an article I've just read in the Telegraph from google which was publised in Feb 2011 says "in most cases bankruptcy ends in one year or less. After this the slate is wiped clean"
What does that really mean - is it just that some cases may end in one year?
Thanks

peanutbuttercups

Unless the 'friend' were to sign up here and clarify it's best to offer several points of view for the OP to be aware of all implications

It's a member of my family and its a good idea to get diff points of view thanks.
My own view is they want shot of the house but I don't understand why. I think I can't really help them financially tbh but I guess they needed to ask and look for options.
Thanks

Ineedaname

I think the very best help you can give them right now is to advise them to contact one of the free debt advice charities. That way they'll get impartial advice on whether it's best to 'lose' the house or if they could keep it if they want to. Also which route would be best for them, DMP, IVA, DRO or BR.

This is a really useful factsheet setting out the different rules for each option.

Although the slate is wiped clean with bankruptcy as far as the debts are concerned, the implications of BR can last for life.

peanutbuttercups

That factsheet is just what I needed. Thanks so much.