voluntary Bankruptcy

jonesy111

Hi, I wondered whether you can go bankrupt even though you are earning and can pay your bills. Basically my sister and her boyfriend, have a high rate mortgage and ridiculous loan (secured) on there house which i'm not sure of the details but there is £10,000 still left to pay and £33,000 has already been paid.
They live in a small flat and believe there only option of getting out of there into a house with a garden (they have two small children) is to stop paying the loan and mortgage and become bankrupt to have a "clean slate". I don't agree with this and have tried to find out more online. We don't really get on so I haven't offered any advice, he seems to think it would be easier but i'm not so sure. He is paying interest only on the mortgage so doesn't actually own any of it.
Just to clarify this is not me and I don't agree with this plan of action, my sister has become ill with depression from being stuck in this flat. I have some debts myself and can't wait to get out of them, i'm paying what i can and trying to get 0% cards, it does make me sick thinking that he is just trying to get away with it. He has missed this months payment on the loan and mortgage is next, is he going to get away with doing this?

freddy911

To go BR he will need to be insolvent, if he goes to the court and the judge thinks he has enough money to pay his debts it will be refused, also if he does have a large surplus income beyond basic living needs this will be taken from him for a period of 36 months in the form of a IPA if he does manage to go BR.

freddy911

Also only unsecured debts can be counted for BR, so to go BR on the secured loan he would have to have the flat repossesed first at which point that debt will then become unsecured, unless he has other unsecured debts.

Sounds like he just wants to offload the shortfall on his flat, does he realise he will be unlikely to be able to buy another property for a considerable amount of time?

jonesy111

Well he's planning to default on the mortgage as well I guess to get this repossessed. Would the house be sold to pay the loan creditors and the rest to go to the mortgage company, the house i think will not sell for as much to cover both, what would happen then, he would have to set up a repayment plan for 3 years? he is quite happy to lose the house, he thinks that it will stay on his file for 6 years then he can start again? I don't believe he will ever be able to get a mortgage his in his mid-forties now.

jonesy111

srichar3 wrote: »

To go BR he will need to be insolvent, if he goes to the court and the judge thinks he has enough money to pay his debts it will be refused, also if he does have a large surplus income beyond basic living needs this will be taken from him for a period of 36 months in the form of a IPA if he does manage to go BR.

He's earning and with defaulting on the loan he's now £400 better off a month, he does have the means to pay, he just see's this as the only option to get out of the flat!

freddy911

jonesy111 wrote: »

Well he's planning to default on the mortgage as well I guess to get this repossessed. Would the house be sold to pay the loan creditors and the rest to go to the mortgage company

When the house is repoed the funds will pay the mortgage first, then if any is left over it will go towards the secured loan not the other way round.

What he needs to consider when working out how much better off he is, is that when he goes BR his income and expenditure will be assesed by the OR, he will be allowed the basic living costs, if after his basic living costs he has a surplus income of more than £20 the OR will take this from him for 36 months.

However if he is not insolvent, his bankruptcy will be refused, BR is not a way of avoiding paying debt you dont want to pay.

jonesy111

That's what I thought. Bankruptcy shouldn't be a way to get out of large debt, especially not that simple otherwise everyone would be doing it! I think he will probably be refused at the courts as he has the income to pay the debt and there is no reason from there point of view why he should not pay. Wanting to move out of a flat isn't a valid reason in there eyes!
I'm concerned now though that as he has started to default and he gets refused bankruptcy he is going to be really in trouble with getting back on track.
I think there is more to his history with this loan than he has let on as i wouldn't get into any kind of credit agreement where you didn't know your APR, term and payment each month!
Very scary situation, i'm just really worried about my sister and two little nieces, he is risking alot!

alastairq

where would they live once the flat is re-possessed?

Once the mortgage and secured loan are defaulted, and re-possession proceedings are commenced, they would likely have to find somewhere to rent.

This means vacating the flat......handing back the keys, etc.

Not forgetting issues with Council tax?


They would have a much better chance of renting a house if they do so without BR on their files.

[However, with renting, there may be clauses terminating the lease should BR be petitioned after moving in.]

If BR is not petitioned, or granted, they would be pursued for any shortfall from the sale of the flat.

Given the gentleman's age [mid forties?], following the 6 year period that BR remains on one's files, there really isn't much 'earning' time left for a mortgage of decent enough length to have reasonable repayment figures.

Have they tried actually selling the flat?

So_Sad_Angel

I would suggest that if the issues are financial that they seek advice from the debt charities CAB/CCCS/Nat Debtline in the first instance.

I agree with Alastair & would be asking why don`t they try & sell the flat or alternatively rent it out (with their mortgage company`s permission) & go find somewhere else to live that does have a garden.

Bankruptcy is the `last resort` & not just the `way out` because they live somewhere that is no longer suitable.

debtinfo

jonesy111 wrote: »

He's earning and with defaulting on the loan he's now £400 better off a month, he does have the means to pay, he just see's this as the only option to get out of the flat!

I cant see how you can make that jugement, i would venture that with most cases we see like this you probably are not aware of all of the facts of his finances,

as SSA says the best thing you can do is to convince him to seek financial help from one of the debt charities

jonesy111

alastairq wrote: »

where would they live once the flat is re-possessed? He wants to save the loan money that he isn't paying each month to save a deposit and move into a flat before he officially goes bankrupt

Once the mortgage and secured loan are defaulted, and re-possession proceedings are commenced, they would likely have to find somewhere to rent.

This means vacating the flat......handing back the keys, etc.

Not forgetting issues with Council tax? Not sure about that


They would have a much better chance of renting a house if they do so without BR on their files. He's planning to rent before he officially goes BR to stop this becoming an issue when trying to rent

[However, with renting, there may be clauses terminating the lease should BR be petitioned after moving in.]

If BR is not petitioned, or granted, they would be pursued for any shortfall from the sale of the flat.

Given the gentleman's age [mid forties?], following the 6 year period that BR remains on one's files, there really isn't much 'earning' time left for a mortgage of decent enough length to have reasonable repayment figures.

Have they tried actually selling the flat?

It's in negative equity so he can't sell, as they wouldn't be able to rent and still pay this loan he has and what ever negative equity they are left in.