Bankruptcy, Main Residence & Mortgage Company

fermi

From the Insolvency Service, out it in more formal terms than I did.

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.

tmb70

fermi, so in simple terms, I am the sole owner with negative equity. As the loan is secured on the property I can only sell it if the full balance is paid, or, worse case I fall into arrears then house is repossed (so now homeless and unable to get a mortgage) and sold the lender cannot chase me for any shortfall because I am a bankrupt sole owner.

silvercar

tmb70 wrote: »

silvercar, as this is all a new experience (what a description!), I am not clear on the negative equity being written off.

Just looking at the situation now, say you have a mortgage for £100k and the property is worth £75k therefore £25k negative equity, are you implying that my new mortgage balance is reduced to £75k! Ummm.

Can you help me please.

Sorry, I wasn't clear.

If you go bankrupt then the negative equity is written off - but only when the property is sold.

If you keep the property the negative equity isn't quantified and you have to keep up with your mortgage repayments on the total mortgage to avoid risking repossession.

silvercar

tmb70 wrote: »

fermi, so in simple terms, I am the sole owner with negative equity. As the loan is secured on the property I can only sell it if the full balance is paid, or, worse case I fall into arrears then house is repossed (so now homeless and unable to get a mortgage) and sold the lender cannot chase me for any shortfall because I am a bankrupt sole owner.

Yes, provided you don't sign anything after bankruptcy taking responsibility for the debt again. This could be as simple as agreeing a new mortgage deal with the same lender - anything you sign after bankruptcy may say in the small print that you (re-) acknowledge the debt.

As to the "homeless and unable to get a mortgage". Plan this through, if you are going to lose the house then sort a rental before repossession. In bankruptcy you are not going to be able to get a mortgage even without a repossession.

silvercar

One further thought, if you intend going bankrupt and not your wife; make sure that you have no financial link with her. You say the house is your alone so it would make sense to severe any joint accounts before bankruptcy to keep her credit record as clean as possible.

tmb70

silvercar wrote: »

One further thought, if you intend going bankrupt and not your wife; make sure that you have no financial link with her. You say the house is your alone so it would make sense to severe any joint accounts before bankruptcy to keep her credit record as clean as possible.

Taken on board your advice to remove wife's name from joint bank acc, this will take 4 weeks!! I will need to close it (and open a new acc with a different bank), but will this action cause alarm bells with OR.

Obviously I need to think of the future regards a future mortgage and such like.

Thanks

fermi

tmb70 wrote: »

Taken on board your advice to remove wife's name from joint bank acc, this will take 4 weeks!! I will need to close it (and open a new acc with a different bank), but will this action cause alarm bells with OR.

Not normally. Many people do similar.

You just have to make sure that if there is an OD, that any funds to pay it off don't 'originate' from you. i.e. you shouldn't be paying off one of your debts in preference shortly before the BR.

tmb70

fermi wrote: »

Not normally. Many people do similar.

You just have to make sure that if there is an OD, that any funds to pay it off don't 'originate' from you. i.e. you shouldn't be paying off one of your debts in preference shortly before the BR.

fermi, so to keep my wife clean it is advisable to shut the account and reopen another in my name - even at this late stage.

fermi

tmb70 wrote: »

fermi, so to keep my wife clean it is advisable to shut the account and reopen another in my name - even at this late stage.

If that is the only financial link (joint account/loan etc) you have, then I would if at all practical.

tmb70

fermi wrote: »

If that is the only financial link (joint account/loan etc) you have, then I would if at all practical.

fermi & silver, thanks for the tips, I will withdraw the funds on Monday and close the account.