Can I become a secured creditor?

richarduk

I have informally lent a friend a considerable sum of money. She's now experiencing major financial difficulties. Her only major remaining asset is the equity in her home. She's currently trying to sell her home to release the equity and resolve her problems. However, this process is taking a long time and there now is a serious risk that this won't happen in time before cash flow problems force bankruptcy.

All her other debts are unsecured and she is willing to secure my debt against her home as a backup plan - is this possible? Is there anyway to secure an informal arrangement between friends in this sort of situation?

nealnomoney

has she considered entering into an iva? this would save bankruptcy.

richarduk

Yes, an IVA is another option, but she's keen to try and put something in place ahead of these options to try and protect/formalise my debt. I don't think it's possible for an individual to become an secured creditor - but maybe someone knows better?

jonesMUFCforever

If she becomes bankrupt now any worthy trustee in bankruptcy would see through your plan almost immediately and arrange for it to be set aside.

IMO you are well too late to get security.If the worst happens then you will become an unsecured creditor and any assets would be shared pro rata between all creditors once the mortgage and any monies due to HM Revenues and Customs have been paid.

Sorry if this is not what you wanted to hear.

JoeK_3

Yes you can secure the debt on the property.

See a solicitor fast.

JoeK

h4nym

ejones999 wrote: »

If she becomes bankrupt now any worthy trustee in bankruptcy would see through your plan almost immediately and arrange for it to be set aside.

That's the key here, I'm afraid... there's a case to be made that it would be fraud - attempting to favour one creditor over another without giving all creditors the same opportunity.

Looks like an IVA is the best way to go on this, sadly.

H

jonesMUFCforever

Thanks h4nym.
That was the phrase I was looking for but could not remember.

silvercar

depending on the costs involved, it may be worth securing that charge on the property. I would try and search out as much paperwork as possible relating to the loans you have given your friend, in order to "prove" that this was the agreement rather than look like you are trying to create a preferential creditor situation or worse that you are using the charge to keep money back from the bankruptcy on your friends behalf.

Bankruptcy can take a while to go through and it may be, especially if the sale of the house proceeds quickly, that the money can be secured. I know someone that managed to do this; they only had the charge put on the property when it was already being marketed, their bankruptcy occured a few months after the sale and AFAIK the charge amount was secured.

Somerset

Yes, you can secure against the property, perfectly properly.

I bought a repo'd flat 6 months ago. A friend of the debtor had lent him money to help keep him afloat but I presume they fell out when the money situation blew up. The friend went through a local CAB and secured a charge against the property. I discovered this when my solicitor did the searches etc, and the mortgagor in possession had to pay off the charge during the completion to me. So it can be done.

silvercar

Somerset wrote: »

Yes, you can secure against the property, perfectly properly.

I bought a repo'd flat 6 months ago. A friend of the debtor had lent him money to help keep him afloat but I presume they fell out when the money situation blew up. The friend went through a local CAB and secured a charge against the property. I discovered this when my solicitor did the searches etc, and the mortgagor in possession had to pay off the charge during the completion to me. So it can be done.

It definitely can be done in the situation you describe.

Problems occur if the debtor goes bankrupt. Then the Official Receiver will look at the charges on the property and MAY feel that the charge was put in place to benefit one creditor over the others ie the creditor with the charge received full settlement of their loan at the expense of the other creditors, when the proceeds should have been disributed on an equitable basis of x pence in the £. The OR would take a dim view if he felt the charge was put in place as a way to secure funds that would end up back with the debtor post bankruptcy.

Somerset

silvercar

I understand what you're saying.

Just wondering here, isn't it the case where ppl have various unsecured creditors, that say a credit card will jump in and obtain a charge so they are first in the queue/get some security for the debt. If an OR looks 'unfavourably' on this type of behaviour ( one credit card over say another credit card ) and can potentially reverse it, why does it seem such common practice with unsecured creditors ? Maybe they think it's worth a punt and not all end up bankrupt ? Would the OR automatically reject it ?

Just curious here.