Bankruptcy advice.

apz7

Hi, I'm new to the forums but after reading a few similar situations I thought it'd be best to post my own and potentially receive some advice.

Story is as usual, business was going well however after a certain amount of time it went downhill. Loan payments became harder and harder and here we are today. So i'll layout the amount of secured loans against the house.

House worth - around 350k-450k (needs valued)
Mortgage - 160k
Loan 1 - 250k
Loan 2 - 70k

Total Secured (charges against house) = 480k
Lets say house worth is 400k, that would leave us in 80k negative equity.

(There are also unsecured loans and CC loans of high amounts too)

Now this is my parents house, and their business. We are suffering as a family and bankruptcy seems a viable option in our situation. We have went the route of an IVA however the payments of the secured loans haven't been kept up, which means we are getting letters, bailiffs etc. sent to the house with action to take it further.

My parents are currently worried and after doing some research I have found that if a house is in negative equity, the official receiver will wait 2 years and 3 months to assess the situation again. In this time you are free to stay in your home. My question is, when the official receiver comes back to review if the house is still in negative equity, will he prevent the house from being sold?
another question is, how would the negative equity turn into positive equity, if we can't keep up payments? (apart from the value of the house going up)

So in conclusion I suppose the question I am asking is are we able to keep the house if we go bankrupt? (mortgage payments are interest only and we will ALWAYS keep paying the mortgage ofcourse)

Just to add to the question, my father also has a property worth 100k which one of the loans have a charge on. Would this be taken away from the total equity in the house? For example
House worth : 400k
Property 1 worth : 100k  (total 500k)

Total Secured loans - 480k
Total equity left - 20k

- is this how it would work?
so in this instance the house would be sold since there is equity left?

Sorry if this comes out a bit unclear, im just looking for some guidance in this situation and there's too many questions to ask. Bankruptcy is a scary thing for my parents as the house is in risk.
I hope someone can help, time is getting tighter.

Thankyou. 

bradders1983

The OR isnt going to even consider selling the house if it doesnt clear the mortgage off it. Even if there is slight equity, it may not even be considered.

Minkym00

You need to consider the two properties separately not together. I'm assuming both parents would be bankrupt.
 
Property one = family home (I'm assuming here that they live in it). As you say, the OR has 3 years in which to deal with this property, and if in negative equity, would revalue it at 2 years and 3 months. They may also consider re-vesting it (i.e. giving it back to your parents) earlier if they consider that there is no way it will reach an equity position in 3 years. You say that the mortgage payments are interest only - is this because they have made an agreement with the lender just to pay the interest for the time being, or is it an interest-only mortgage? If it is the latter then the OR is much more likely to re-vest the property as are not paying off anything the principal sum and so much harder for the property to gain any equity.

Property two -  this may be an NQP  (i.e. Non Qualifying Property) if it is not family home. There are definitions of a qualifying property so can you please advise who is living in it i.e. any relation? If so what is the relationship with your father? If it is an NQP then it will remain an asset in bankruptcy until it is dealt with, there are no time limits. Is it rented out? Is it the £70k charge against this property? Is there any mortgage? 

If you can clarify the details on the 2nd property and I can advise what will happen to it. 

apz7

Minkym00 said:

You need to consider the two properties separately not together. I'm assuming both parents would be bankrupt.
 
Property one = family home (I'm assuming here that they live in it). As you say, the OR has 3 years in which to deal with this property, and if in negative equity, would revalue it at 2 years and 3 months. They may also consider re-vesting it (i.e. giving it back to your parents) earlier if they consider that there is no way it will reach an equity position in 3 years. You say that the mortgage payments are interest only - is this because they have made an agreement with the lender just to pay the interest for the time being, or is it an interest-only mortgage? If it is the latter then the OR is much more likely to re-vest the property as are not paying off anything the principal sum and so much harder for the property to gain any equity.

Property two -  this may be an NQP  (i.e. Non Qualifying Property) if it is not family home. There are definitions of a qualifying property so can you please advise who is living in it i.e. any relation? If so what is the relationship with your father? If it is an NQP then it will remain an asset in bankruptcy until it is dealt with, there are no time limits. Is it rented out? Is it the £70k charge against this property? Is there any mortgage? 

If you can clarify the details on the 2nd property and I can advise what will happen to it. 

1st Question Answer :

The family homes mortgage is an interest only mortgage, so the interest of the loan is being paid each month only.

Second:

The second property is a rented out property, currently being used for commercial purposes. My father earns that income each month and essentially uses that money to pay his bills every month (mortgage, insurance etc.). The tenants have no relation to my father, and the bank that has a charge on the family home also has a charge on this particular property. (I’m sure there security is 240k).
There is no mortgage against this property, it is fully paid off and has been for a long time.


Thankyou so much for taking the time to answer, it’s relieved my parents that this is a possibility. Both parents would become bankrupt you’re correct. My mother has no share in the family home but I have an understanding that because they are married the OR considers that she does infact have a share? Would this affect the outcome at all?

I really appreciate it. Thankyou very much.

apz7

bradders1983 said:

The OR isnt going to even consider selling the house if it doesnt clear the mortgage off it. Even if there is slight equity, it may not even be considered.

So it would be revested, the way minky has advised? 

apz7

I apologise, new to the forum
not sure how to edit a post quite yet. I have a couple more questions if you/ any one doesn’t mind.

Since these debts are secured debts, and they have charges against the family, from my understanding they do not get written off by a bankruptcy. This means that they are allowed to keep chasing for the money in the coming years? for example 5 years down the line they could come chase for the money again? I’m not too sure how it works, as I’m not too sure we’d ever be able to pay off these secured loans if that was the case, the amount is simply far too much without the businesses we had. - so in this case we’d simply always be at risk?

Also if the guarantors of these secured debts also went bankrupt, would they chase them in the future too if the above is correct. 

Minkym00

OK, so the family home is may well be re-vested. No-one can say for sure right now though.

I’m still not clear on property two – what is the value of the charge on this property alone?

This property is potentially problematic. The rental income will be claimed by the trustee and your father will not be allowed the funds to pay the other mortgage or any bills. The trustee could sit on it for years, claiming the rental income, until it was worth selling. But it may depend on the equity position – hence why I ask about the charge on it.

Secured loans do not vest in bankruptcy and the chargeholder could apply to the court for an order of sale at any point in the future. If the chargeholder went bankrupt / into liquidation then any charges they have would be assets in that bankruptcy / liquidation and the liquidator would then be owed the money. The liquidator could apply for an order of sale if it was worth it.

apz7

Minkym00 said:

OK, so the family home is may well be re-vested. No-one can say for sure right now though.

I’m still not clear on property two – what is the value of the charge on this property alone?

This property is potentially problematic. The rental income will be claimed by the trustee and your father will not be allowed the funds to pay the other mortgage or any bills. The trustee could sit on it for years, claiming the rental income, until it was worth selling. But it may depend on the equity position – hence why I ask about the charge on it.

Secured loans do not vest in bankruptcy and the chargeholder could apply to the court for an order of sale at any point in the future. If the chargeholder went bankrupt / into liquidation then any charges they have would be assets in that bankruptcy / liquidation and the liquidator would then be owed the money. The liquidator could apply for an order of sale if it was worth it.

From my knowledge,

the bank that have security of around 240-250k had taken a charge of 2 properties the family home and the rented property. It was a charge to recoup all of the 250k they had lent. I think this was because there wasn’t enough equity in the family home to cover the 250k security so they took a charge in the rented property.

so they don’t have a specific amount that they took a charge on.

furrher to the question asked before. After the bankruptcy would they still be able to chase my father for the amount owed (secured debt)

Minkym00

That doesn't sound right to me. I'm sure that there would have to be a specific charge amount. Your parents will have been sent a copy of the final charging order from the court. Can you get it and tell me what it says?

My last paragraph was intended to answer the chasing of secured debt question, but wasn't clear. Basically once a creditor has a charge, they don't chase the debt as there's no point. It's secured, and will be paid. They have 12 years in which to apply for an order for sale. If any realisation of assets doesn't satisfy the charge in full, then the shortfall would vest in your father's bankruptcy.   

flipflopflo

Yes they can. The debt is secured on the property and will not fall into the bankruptcy so will still stand and will need to be paid should they come calling for it. 

If the house is sold and there are any debts that are outstanding after the  equity is used to pay off the mortgage and secured debts  anything that is left secured debt wise will then fall into the bankruptcy. This will happen no matter how long after the bankruptcy the house sale happens. 

apz7

flipflopflo said:

Yes they can. The debt is secured on the property and will not fall into the bankruptcy so will still stand and will need to be paid should they come calling for it. 

If the house is sold and there are any debts that are outstanding after the  equity is used to pay off the mortgage and secured debts  anything that is left secured debt wise will then fall into the bankruptcy. This will happen no matter how long after the bankruptcy the house sale happens. 

So essentially regardless if the house is in negative equity the house WILL be sold at some point and be used to paid of creditors that have the charge?