Ask a StepChange debt advisor a bankruptcy question

HopefulRecovery

Hi, I'll be forced into bankruptcy next week.

Should I cancel my council tax DD payment for next week assuming the council tax bill will clear in bankruptcy?

My wife and I own the property 50/50 so does the council tax bill clear in that situation too?

StepChange_Aidan

Hi,

Thanks for your post.

The full annual council tax bill for the rest of the financial year is included in bankruptcy. This means you wouldn't be required to pay any more council tax until the next bill is issued the following April.

However, please bear in mind that bankruptcy only releases your liability for council tax. If your property is jointly owned, your wife would need to continue paying it.

I hope this helps,

Aidan

FionaS1607

I have recently received correspondence from Mortimer Clarke Solicitors, acting on behalf of Marlin Europe I Limited, in connection with a debt originally secured by a charging order from HFC Bank PLC on my former property.

The charge was obtained prior to my bankruptcy order, which was made on 2 December 2008. I was discharged from bankruptcy on 2 December 2009. The property in question was repossessed in 2022 and sold in 2023 with confirmed negative equity.

The debt collection agency has advised that:

“When a debt is secured against a property, it is not included within a bankruptcy. The debt remained secured against your property.
When the property was repossessed, we should have been informed when the sale went through that there was negative equity.
Had there been surplus funds this would have been sent to us to pay the outstanding balance. The surplus funds would not have been put back to the bankruptcy.
Due to the negative equity the debt then became unsecured, but you remain liable for the debt.”

Based on previous guidance my understanding is that:

• As the debt was incurred prior to the bankruptcy, and the charge was secured on the property before the bankruptcy order, it was not provable in the usual sense because the creditor's recourse was limited to the secured asset.

• Once the property was sold with no equity, the charge ceased to have effect.

• The shortfall became an unsecured debt stemming from a pre-bankruptcy liability.

• Since no enforcement was undertaken during the bankruptcy and no leave was sought under section 285 of the Insolvency Act 1986, the remaining liability should be considered extinguished following my discharge.

• The extinguishment of the charge due to negative equity does not give rise to a new post-bankruptcy liability.

I would be grateful if you could confirm whether this interpretation is correct, and whether I remain personally liable for the remaining balance of this debt.

StepChange_Aidan

Hi Fiona,

I would agree with your interpretation – Your personal liability for the debt ended when you went bankrupt. The creditor still had a secured interest in the property until it was sold, but they can’t make you liable to repay the shortfall because it was in negative equity.

An exception to this would be if you signed a ‘deed of acknowledgement’ – This is a document where you agree to be responsible to repay a debt after you’ve been discharged from bankruptcy.

Regards,

Aidan

NickS12

Hi All,

I would love some non-judgmental opinions & advise :-)

I’ve got myself in a financial pickle 

I’ve got interest only mortgage, which is currently sat at £150,000 & properties it’s worth £110,000, with lest then 10yrs remaining on the mortgage! I got in trouble with the mortgage awhile ago and I accumulated huge additional fees, hence the negative equity issue

I am currently unable to make additional payments as I have also got £40,000 in non secure debt. All via poor money management.

only reason I’m currently surviving is my partners is buying all my food etc.

I currently looking at moving in with my partner into her Council House, then going bankrupt.

If go bankrupt will my property be repossessed/taken? That is the outcome I would like?

my partner doesn’t work and is on benefits as is carer for her child. How would the income & expenditure work?

Thank You

StepChange_Aidan

NickS12 said:

Hi All,

I would love some non-judgmental opinions & advise :-)

I’ve got myself in a financial pickle 

I’ve got interest only mortgage, which is currently sat at £150,000 & properties it’s worth £110,000, with lest then 10yrs remaining on the mortgage! I got in trouble with the mortgage awhile ago and I accumulated huge additional fees, hence the negative equity issue

I am currently unable to make additional payments as I have also got £40,000 in non secure debt. All via poor money management.

only reason I’m currently surviving is my partners is buying all my food etc.

I currently looking at moving in with my partner into her Council House, then going bankrupt.

If go bankrupt will my property be repossessed/taken? That is the outcome I would like?

my partner doesn’t work and is on benefits as is carer for her child. How would the income & expenditure work?

Thank You

Hi Nick,

Thank you for your post.

If you go bankrupt, your mortgage lender could repossess the property, or the Official Receiver (OR) may decide to sell it. They have three years from the date the bankruptcy is granted to sell, so if your home is in negative equity they could delay the decision in case the value increases.

In bankruptcy, each partner would be expected to contribute towards the household spending. If the OR decides to set an Income Payment Agreement, you may be asked to provide details of your partner’s income so they can check that the costs are being shared fairly.

As others have mentioned in your other thread, you appear to have been prioritising repaying unsecured debts over your priority bills and living costs. It would be best to create a budget so we can fully understand your finances and check that bankruptcy is the best option for you. If you’d like to do this with StepChange, you can create one using our online tool or give us a call to speak with an advisor.

I hope this helps,

Aidan