Possibly a stupid question about bankruptcy and mortgage shortfalls...!

Maxnana

A really fundamental and obvious (although possibly stupid!) question has only just occurred to me

Once we get private accommodation and hand the keys back to our mortgage provider, we are planning on applying for bankruptcy as soon as we're settled, to take into account (amongst other things, but mainly) the shortfall there will be in the mortgage. (The mortgage company will not come after us, as they will without much doubt have the loan repaid in full, but 2nd charge company will have a shortfall, so they will without doubt come after us for that.)

But I just got to thinking - wouldn't the 2nd charge company make us bankrupt themselves anyway, if we can't agree a repayment amount on the shortfall (as I do not honestly think they would accept what we could afford to repay them on a monthly basis)? Thus removing the need for us to rush into bankruptcy ourselves?

Any comments anyone, please?

(And before answering, please do bear in mind that I did state this might be a stupid question for reasons I don't understand -this is still all very new to me!)

Thank you

sundays

I doubt they would make you bankrupt ever.

If your in a position that the SL is not getting paid and is never likely to , you may find that by remaining in the property will in fact not much make difference to what they do, they are between a rock and a hard place , because for example:

If you went BR and were still in the property and paying the mortage but not the secure loan, if they repossessed they get nothing, if you surrender they get nothing, if you choose to paynothing and they take action a per point 1 they still get nothing

Personally id bide some time pay the first mortage as norm , not pay the SL and i suspect you will be there still when your discharged.

I know someone who is BR, pays the mortage, but has not paid the secure loan for 18 months at all and not even a letter from them and even if they do go for repossession action at the point of the court date the arrears will just be added to the term and they will prob only get a suspended order and still remain.
There are a lot of companies seeing the actual results of negative equity now , and they are not evicting.
Your first charge which is the mortage would evict , so always pay that in full.

fermi

They could eventually I suppose, but why would they?

It would cost them £1,000s in court/legal fees to make you bankrupt, and it likely they would get absolutely nothing back by doing so.

Most creditors, apart from HMRC etc, will only make you bankrupt if they think you have large assets that the OR/trustee could go after and so repay the creditors.

If you need to go BR then do it yourself.

Or just ask the company to consider writing the debt off voluntarily, as if they don't you will go BR and force them to anyway.

Maxnana

Now I'm more confused...sorry!

If we stayed in the house and continued paying the mortgage in full, but not the 2nd charge, we wouldn't need to go bankrupt. It's because of the 2nd charge (repayments now at just short of a grand a month) that we are considering bankrupcy in the first place. Our unsecured debts are manageable (or would be, if we weren't paying the 2nd charge).

But surely, in this scenario, the 2nd charge company would force us to go bankrupt or start repo proceedings if we just didn't pay them, bearing in mind that the 2nd charge company have a much greater interest (nearly double) in the property than the original mortgage company?

fermi

Why would they make you bankrupt for the shortfall if doing so won't get them a thing?

Maxnana

So if I'm understanding it right, we could just pay the mortgage, not pay (or only pay as much as we could afford) to the secured loan indefinitely (there's 16 years left on it and it's First Plus by the way!) and we could stay in our home, and not have to go bankrupt as we could then pay our unsecured debts? And there's nothing First Plus could (or would) do about it?

I didn't know that could happen - none of the official advisors we have spoken to have suggested it.

sundays

Maxnana wrote: »

So if I'm understanding it right, we could just pay the mortgage, not pay (or only pay as much as we could afford) to the secured loan indefinitely (there's 16 years left on it and it's First Plus by the way!) and we could stay in our home, and not have to go bankrupt as we could then pay our unsecured debts? And there's nothing First Plus could (or would) do about it?

I didn't know that could happen - none of the official advisors we have spoken to have suggested it.

Not quite, it depends what first choice want to do, no one can say say, but as ive said,if you go bankrupt and remain they get nothing, so they have nothing to gain by forcing you out, only spite, as only the first charge would benefit- its a cat and mouse game.


However being BR will give you the upperhand because being BR tells them they get nowt if they force you out.
By not being BR will allow them to put pressure on you to pay.

Who knows what FP will do , but i bet your one of many in that position.

Im a BR and have a mortage , its the best thing i ever did, my mortage company want me to stay so i pay the mortage, but its nice in a odd sort of way to know that if i couldnt by doing what i have done , removes any liaibility from me if i cant pay it.
As i said in my previous post you learn a lot when you start to really explore and you could have the advantage over FP.
Are your debts then only the SL .

sundays

Also remember its not actually good practice what im saying ,so i doubt any official body would recommend that action, even though it is pretty obvious.
Also remember , we as a nation have not been in a pickle ;like this for 20 years and then there were very few secure loans around, so the SL industry has proffited it massively with higher intrest etc when times were good , so its a first for them to be getting turned over.
Beleive me if you had equity to pay both and you were not paying they would def turn you over, so i think many Secure Loan companies are just waiting and see if prices in time to come do increase. It could take 10 years plus but they have the charge and its still active until its repaid . I suspect then, when equity comes back they will start forcing folk out to get there there long awaited payout.

Speak to them , say your putting us in a intolerable suitaion which means we need to poss surrender, and then we will be forced into going BR, offer then the remaining term at nil percent - they may say yes.

Maxnana

sundays wrote: »

Are your debts then only the SL .

The SL accounts for the majority of our debts and monthly outgoings. We have a small amount of unsecured debt but this is manageable, at least it would be if we could pay none or reduced payments to First Plus without them taking action.

I guess our next thing to do would be, as you say, contact First Plus and tell them we can't continue to pay them or it will force us to hand back the keys to the first mortgage lender followed by applying for bankrupcy.

But what would you think we could present them with, as in 'we cannot pay you another penny (or x amount of pounds a month) until and if our circumstances change for the better'? And what if we never get in a position where we can pay the full amount again? They have said in the past they will let us pay a reduced (not by much) payment for 3 months, but will never stretch longer than that, then want the full payment plus the amount we've not paid over the following 3 months!

By the way - I am fully aware that what you are saying is just a thought, not a suggestion. What we decide to do is our own choice and responsibility obviously, and any repercussions will be of our own doing, not due to any help/support/ideas anyone on here has given. Just wanted to make that clear .

Ineedaname

I think one thing to consider is the stress factor of staying in the house but not paying FP, if they decide to keep sending you chasing letters. Plus the worry of what will happen in the future. If you don't pay the SL can you still maintain the house if anything needs doing?

Not suggesting BR would be the easier option, but certainly worth considering where you would like to be mentally and financially in 5-10 years time.

sundays

You will prob get a lot of hassle before they realise its fruitelless , can you handle that.

What do you really want to do. Its all well us saying what we have, but if you could stay would you want to without there being at the moment any guarantee that you could remain.

i think you will be left alone for a fair bit of time if not several years, but as soon as the climate picks up then there is a risk and at that point will you not be to attached etc

id go in at nil percent or half a percent, depends how long you have had it and how much you have paid.