bankrupty, secured loan, allowed expenses

lilybankrupt

Hello everyone,

I've been browsing the forums for a while now and found some great advice. This is my first post - please be gentle

I've been advised (by CAB and Stepchange) that bankruptcy is the best solution for me. To cut a very long story short (addiction, failed business), I have about £100,000 in unsecured debts (paying £1 token payments) and also negative equity on my property - mortgage of about £300k, secured loan of about £100k, value of property maybe £325k in a 'normal' sale.

I know the numbers are large and i'm feeling pretty rubbish about everything. I also know i'm in for a BRO as the addiction was gambling (but clean for 5 years now).

The bit that i'm struggling most with at the moment is the house and the housing question. I know a lot of people advise finding rented accommodation and then going BR / handing back the keys. This is what I would like to do - I bought the house when I had a very well paid job and aside from the mortgage it's really expensive to run - the fuel bills alone are nearly £200 a month. But i'm running into brick walls on finding rented. The council are telling me that it would be a minimum of a year before I would be allocated social housing even if I were homeless, as I don't have children / don't have a medical need and am therefore not top priority. I have no chance with letting agencies with all the defaults (no guarantor available). I've been scanning private ads but around here even private landlords do credit checks, and a studio flat costs more than the allowed amount for housing benefit.

So i'm wondering whether the best option is to try to stay put. This is where i'm looking for advice and confirmation that my understanding is correct....

I know that secured loans are not included in a bankruptcy, but believe that any shortfall on sale / repossession is included, even if the repossession happens months or even years after discharge.

I also believe that when calculating allowed expenses, the Official Receiver looks at reasonable housing costs in your area and also at whether any of the mortgage payments are against the negative equity part as this is in effect no longer secured. And he won't normally allow any payments against the negative equity bit.

My main mortgage payments are really low as i'm on half a percent above base, in fact the payments are a lot less than I would pay to be a lodger in my area. They are about £250 a month for the £300k mortgage.

The secured loan payments are about £1,000 a month for the £100k. If we assume that of the £100k secured loan, only £25k is covered by the property value, I'm wondering if that means the OR would allow £250 per month to pay the secured part?

This would bring my total mortgage to £500 a month, which is the same as the LHA amount for a single person and the same as / slightly less than a one bed rental in my area.

But what i'm then wondering is what is going to happen when I go back to the secured lender (Firstplus) and say 'you're getting £250 a month and i'm not allowed to pay you more for 3 years'?

This will obviously build up 'new' arrears and charges post BR, are they considered 'new' debts or will they still be included in BR if Firstplus ultimately seek repossession?

And are they able to seek repossession? If so are they likely to do this or will they wait in the hope of seeking repossession later when there is more equity for them?

I feel stuck between a rock and a hard place...if i'm going to go BR with all the negatives and guilt that brings, i'd really like to just get it all over with cleanly and start afresh properly so I can get back on my feet and start paying my way again. But finding somewhere else to live just feels impossible.

Any / all advice much appreciated.

Mouse1812

You have a good understanding on most of it.

The "new arrears" as you put it will not however be new debt. You already owe that and will simply not be paying back it as fast as they want you to. I therefore believe any arrears will still be included in the bankruptcy if the property is subsequently sold with a shortfall.

I can not say what Firstplus will do, hearsay evidence suggests that most leaders do act in rational ways. It would perhaps be best to discuss the situation with them.

lilybankrupt

Thanks for the quick response!

I phoned Firstplus to ask them what they would do, but the adviser just kept saying 'secured debts are not included in bankruptcy' and then once i'd convinced him it wasn't that simple I got 'we'd pass it to Eversheds to agree a plan'. I tried to explain that again it wasn't that simple and in the end all we got to was 'we can't say until it happens'. Eeeeek.

The Insolvency Service advisor said the Insolvency Act says 'they have no legal recourse' so thinks they can't repossess. But i'd read that as 'in reality they have no recourse ie no equity' as opposed to 'not allowed to take action'.

I wish I could afford to see an Insolvency Practitioner to guide me through all this

mattannar

With your mortgage repayments that low you must be paying interest only. So what did you have in place to settle the motgage at term.

lilybankrupt

Hi, there isn't anything in place - when I originally took out the mortgage it was repayment but switched to interest only when I started struggling.

debt_doctor

lilybankrupt wrote: »

The Insolvency Service advisor said the Insolvency Act says 'they have no legal recourse' so thinks they can't repossess.

I think the IS actually think that is correct - It isn't.
You are correct in that they can take action to repossess the property - the first charge would be paid in full and first plus would get the remainder.

It's very tricky to gauge what first plus would do in your BR senario. (I agree with mouse, the arrears would not be a new debt so would fall in to your BR if actually repo'd) They would lose out big style if they went for possession, but ive seen strange things happen.

DD

lilybankrupt

Thanks, that's helpful.

I'm really hoping I can find somewhere to rent, I guess the longer I have to look / bid on council property even if FP start repossession the better.

On a positive note, Citizen's Advice have got me a free appointment with an Insolvency Practitioner next week, someone who works with them once a month. :j