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

What2do2025

Hi, I'm considering my options - Have been online with Stepchange and the three options were 1) DMP, 2) IVA and 3) Bankruptcy, I'm thinking bankruptcy might be my preference given I have no assets and would like to be debt free and fresh start by 46. 

Whole host of reasons for my situation (£93+k) in debt, I'll not list them and I know I ultimately have to take responsibility it, I'm embarrassed to be in this position. I'm fortunate enough to have a good salary with a take home of around £3500. 

I have included my SOA below, my questions are:

1) Is bankruptcy my best choice?
2) I have an NHS lease car that pre tax comes out of my salary at £790 per month although in reality only reduces my take home by apx £500 - will the OR allow me to keep this, needed for my job, high penalty for return and rental includes everything / no credit agreements. Lease have said I am able to keep it for the duration. 
3) Does my SOA look ok, My partner who is autistic with severe and enduring MH issues stays with me 5 days a week and doesn't make any contribution. I share a rented house with one other and everything house bills / rent wise is split 50/50.

I'm not currently defaulting on any of my accounts, have been moving around zero interest and not facing up to the situation but this is about to come to an end. I'm thinking of stopping all payments next month and building a bit of a buffer before applying for bankruptcy in the new year.

SOA:

font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]
Number of adults in household........... 2
Number of children in household......... 0
Number of cars owned.................... 0[b]

Monthly Income Details[/b]
Monthly income after tax................ 3500
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0[b]
Total monthly income.................... 3500[/b][b]

Monthly Expense Details[/b]
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 825
Management charge (leasehold property).. 0
Council tax............................. 90
Electricity............................. 50
Gas..................................... 50
Oil..................................... 0
Water rates............................. 35
Telephone (land line)................... 0
Mobile phone............................ 10
TV Licence.............................. 15
Satellite/Cable TV...................... 25
Internet Services....................... 35
Groceries etc. ......................... 400
Clothing................................ 30
Petrol/diesel........................... 40
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 80
Other travel............................ 20
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 200
Pet insurance/vet bills................. 50
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 30
Haircuts................................ 30
Entertainment........................... 30
Holiday................................. 30
Emergency fund.......................... 25
Gym..................................... 30
HCPC (Prof fees) ....................... 11
Union .................................. 32
Logs (heating).......................... 25[b]
Total monthly expenses.................. 2198[/b]
[b]

Assets[/b]
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0[b]
Total Assets............................ 0[/b]
[b]
No Secured nor Hire Purchase Debts[/b]

[b]Unsecured Debts[/b]
Description....................Debt......Monthly...APR
MBNA CC........................11198.....505.......29.6
Virgin CC......................9180......300.......24.9
Virgin CC......................4200......150.......24.9
Very ..........................2699......134.......0
Fluid CC.......................1600......50........0
Tesco CC.......................6383......200.......0
Updraft Loan...................11130.....252.......0
Zopa Loan......................14054.....250.......0
MBNA Loan......................5573......172.......0
Monzo Loan.....................21041.....460.......0
John Lewis CC..................6758......300.......24.9[b]
Total unsecured debts..........93816.....2773......-  [/b]

[b]
Monthly Budget Summary[/b]
Total monthly income.................... 3,500
Expenses (including HP & secured debts). 2,198
Available for debt repayments........... 1,302
Monthly UNsecured debt repayments....... 2,773[b]
Amount short for making debt repayments. -1,471[/b]

[b]Personal Balance Sheet Summary[/b]
Total assets (things you own)........... 0
Total HP & Secured debt................. -0
Total Unsecured debt.................... -93,816[b]
Net Assets.............................. -93,816[/b]

[i]Created using the SOA calculator 

StepChange_Aidan

What2do2025 said:

Hi, I'm considering my options - Have been online with Stepchange and the three options were 1) DMP, 2) IVA and 3) Bankruptcy, I'm thinking bankruptcy might be my preference given I have no assets and would like to be debt free and fresh start by 46. 

Whole host of reasons for my situation (£93+k) in debt, I'll not list them and I know I ultimately have to take responsibility it, I'm embarrassed to be in this position. I'm fortunate enough to have a good salary with a take home of around £3500. 

I have included my SOA below, my questions are:

1) Is bankruptcy my best choice?
2) I have an NHS lease car that pre tax comes out of my salary at £790 per month although in reality only reduces my take home by apx £500 - will the OR allow me to keep this, needed for my job, high penalty for return and rental includes everything / no credit agreements. Lease have said I am able to keep it for the duration. 
3) Does my SOA look ok, My partner who is autistic with severe and enduring MH issues stays with me 5 days a week and doesn't make any contribution. I share a rented house with one other and everything house bills / rent wise is split 50/50.

I'm not currently defaulting on any of my accounts, have been moving around zero interest and not facing up to the situation but this is about to come to an end. I'm thinking of stopping all payments next month and building a bit of a buffer before applying for bankruptcy in the new year.

SOA:

font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]
Number of adults in household........... 2
Number of children in household......... 0
Number of cars owned.................... 0[b]

Monthly Income Details[/b]
Monthly income after tax................ 3500
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0[b]
Total monthly income.................... 3500[/b][b]

Monthly Expense Details[/b]
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 825
Management charge (leasehold property).. 0
Council tax............................. 90
Electricity............................. 50
Gas..................................... 50
Oil..................................... 0
Water rates............................. 35
Telephone (land line)................... 0
Mobile phone............................ 10
TV Licence.............................. 15
Satellite/Cable TV...................... 25
Internet Services....................... 35
Groceries etc. ......................... 400
Clothing................................ 30
Petrol/diesel........................... 40
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 80
Other travel............................ 20
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 200
Pet insurance/vet bills................. 50
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 30
Haircuts................................ 30
Entertainment........................... 30
Holiday................................. 30
Emergency fund.......................... 25
Gym..................................... 30
HCPC (Prof fees) ....................... 11
Union .................................. 32
Logs (heating).......................... 25[b]
Total monthly expenses.................. 2198[/b]
[b]

Assets[/b]
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0[b]
Total Assets............................ 0[/b]
[b]
No Secured nor Hire Purchase Debts[/b]

[b]Unsecured Debts[/b]
Description....................Debt......Monthly...APR
MBNA CC........................11198.....505.......29.6
Virgin CC......................9180......300.......24.9
Virgin CC......................4200......150.......24.9
Very ..........................2699......134.......0
Fluid CC.......................1600......50........0
Tesco CC.......................6383......200.......0
Updraft Loan...................11130.....252.......0
Zopa Loan......................14054.....250.......0
MBNA Loan......................5573......172.......0
Monzo Loan.....................21041.....460.......0
John Lewis CC..................6758......300.......24.9[b]
Total unsecured debts..........93816.....2773......-  [/b]

[b]
Monthly Budget Summary[/b]
Total monthly income.................... 3,500
Expenses (including HP & secured debts). 2,198
Available for debt repayments........... 1,302
Monthly UNsecured debt repayments....... 2,773[b]
Amount short for making debt repayments. -1,471[/b]

[b]Personal Balance Sheet Summary[/b]
Total assets (things you own)........... 0
Total HP & Secured debt................. -0
Total Unsecured debt.................... -93,816[b]
Net Assets.............................. -93,816[/b]

[i]Created using the SOA calculator 

Hi,

Thanks for posting.

If you’ve used our online tool, our recommendation would have been the first solution listed. This would be a DMP, as your SOA shows that you have £1,302 available each month for debt repayments and you could potentially repay the debts in full in around 6 years.

IVA and bankruptcy would have been listed under alternative, or available but not recommended solutions.

If you did go bankrupt, and your budget shows that you have money left over after covering your living costs, there’s a risk that the OR could set an Income Payment Arrangement (IPA) where you’d be required to make a monthly payment, usually over three years.

The OR would make the decision about your lease car on a case-by-case basis. They may agree that it’s essential for your job and allow you to continue with the agreement, but this isn’t guaranteed.

The spending looks generally reasonable for a two adult household, although the medical costs are quite high and you may need to provide more information to the OR to justify them.

If you’d like to discuss your budget and our recommendations in more detail, please get in touch.

I hope this helps,

Aidan