Interest only mortgage with mortgage term ending and struggling to sell, thinking of going bankrupt.

Iansellers

Hello,

I'm in a bit of a pickle which is stressing me out massively and wondered if anyone has any experience.

I took out a mortgage years ago which was interest only, that mortgage term end is now approaching so I have 2 options, either sell the property or remortgage it. The problem is I can't sell it as the lease hold is too short for anyone to be able to get a mortgage on it and the cash buyers will only offer 20k less than what I need. I can't remortgage because the lease is too low for any mortgage lender at the moment. I can't extend the lease because the price to extend is over 30k, money I haven't got. 

Due to the above reasons I'm thinking of handing back my property to the mortgage lender as a voluntary surrender and walking away from it, resigning from my job due to stress, then going bankrupt so that the bankruptcy will squash the 20k-£30k of negative equity that is a certainty once the property is sold at auction by the lender.

I am planning to stay with family and start again, they will support me in this.

I know this is a big step but I have exhausted all the other options and don't see any other option. I realise it will affect my credit rating for 6 years and I'm prepared for that. What are the stages of bankruptcy? How long does it take to sort out initially? How many months bank statements does the OR want to see of me? Will bankruptcy deal with the mortgage shortfall? 

sourcrates

Mortgage shortfall debts tend to be quite large, and that`s one reason why they are not chased that vigorously by creditors.

Your plan to hand back the property is a choice you have to make, and the process can be quite long and drawn out, nothing happens quickly, usually the property will be auctioned off, and all debts settled, any shortfall will then normally be sold on to a debt purchasing company, this can take anywhere from a few months, up to a few years to complete, so there is no rush to go bankrupt.

These companies will buy the debts at a fraction of their face value, then attempt to get the full amount from you, but they won`t know your circumstances, or your ability to pay, so if its unaffordable, which lets face it, most debts of this type are, then you just tell them so, and they will have  to be happy with that.

If you can`t pay, what usually happens is they will sit on the debt a while, things will go quiet, and in all probability the debt will be written off as uncollectable.

So hold off on the bankruptcy until you know how the land lies.

Iansellers

Thank you for your reply.

I also have a charging order of approx 7k against my property I forgot to mention above, this is from approx 2008, maybe 2 or 3 years after that for car hire purchase that I couldn't pay due to redundancy but they registered a charging order and I've forgotten about it until a point where voluntary surrending my property enters my mind.

What will happen to the charging order? That's why I was thinking about going bankrupt as I'll be moving in with my elderly parents and I don't want to be worrying about debt collectors coming to my parents home and upsetting them.

I didn't know after handing back my home keys that I could effectively wait until they come asking me for the shortfall amount before going bankrupt.

I've also got a 15k credit card but am servicing it at the moment without a problem but this is why I'm also thinking when the time comes to go bankrupt to deal with everything straight away.

Thanks again for your helpful response, it's given me something to think about.

sourcrates

Debts are repaid in order of importance, so first order of preference would be the CO, then the outstanding mortgage, all it would do is leave you with a larger shortfall, making repayment even more unlikely.

If you went down the route you describe, they probably wouldn't start collection activity on the shortfall debt for at least 12/24 months, maybe more.

I`m not saying bankruptcy isn`t the right choice here, it may well be at some later point, but there is no need to consider it until the house situation has been dealt with.

Iansellers

Thanks again.

I was thinking if I just went bankrupt when I handed my keys back to the mortgage company and resigned from my job it would get it done out of the way and if I was not earning the OR wouldn't look to take a percentage of any income as I'd be signing on benefits. If I waited to go bankrupt 12/24  months like the scenario above it may mean I went bankrupt whilst in work and the OR may want me to repay some money for 3 years and the result would still be bankruptcy but 2 years later. 

I kinda wanted peace and to deal with it all at once and then accept that for 6 years I'd not be accepted for any credit.

I'd actually be going bankrupt with all debt upto date, no arrears, is it actually possible to go bankrupt with no arrears but just debt that I can't service.

I'm so confused and apologise if I keep thinking of different scenarios. It's also affecting my sleep and mental health, I think that's why I just want to deal with it ASAP rather than wait 12/24 for them to chase for the shortfall.

MalMonroe

Iansellers said:

Thanks again.

I was thinking if I just went bankrupt when I handed my keys back to the mortgage company and resigned from my job it would get it done out of the way and if I was not earning the OR wouldn't look to take a percentage of any income as I'd be signing on benefits. If I waited to go bankrupt 12/24  months like the scenario above it may mean I went bankrupt whilst in work and the OR may want me to repay some money for 3 years and the result would still be bankruptcy but 2 years later. 

I kinda wanted peace and to deal with it all at once and then accept that for 6 years I'd not be accepted for any credit.

I'd actually be going bankrupt with all debt upto date, no arrears, is it actually possible to go bankrupt with no arrears but just debt that I can't service.

I'm so confused and apologise if I keep thinking of different scenarios. It's also affecting my sleep and mental health, I think that's why I just want to deal with it ASAP rather than wait 12/24 for them to chase for the shortfall.

Hi, I recognise those feelings of panic and utter despair, I really do. I agree with sourcrates, though, do not act in haste.

What I would suggest is that you contact one of the free debt help agencies. By phone, rather than completing online forms.

I used StepChange and I am now, a few years after my total and utter meltdown, debt free.

StepChange https://www.stepchange.org/   Their first page says 'we can help you be free of debt'. And it is true.

There's also National Debtline and Citizens Advice - both of which you can click on as they are in sourcrates' signature, above.

If you just prepare a Statement of Account (SOA) beforehand, that's all you need to do before you talk to someone. 

They will (if my own experience is anything to go by) be kind, courteous, non-judgemental and extremely helpful. After my initial call with an adviser, I was able to breathe, relax and sleep through the night for the first time in years.

I found it so very helpful just to talk to someone who calmly told me that there was a solution, it would take a few years but there was light at the end of the tunnel and all was definitely not lost. They then proposed a solution, which I agreed with and they helped me from there on. I took out a DRO - which is really very similar to bankruptcy but for people who have debts of up to £30k.

It's a free call 0800 138 1111 - and a free service. They're open until 8pm today and between 8 and 4 tomorrow. As quickly as that, you could offload your worries and gain some peace of mind.

I do hope that some of this is helpful. I've been in a similar situation, as have many of us here. We understand. And I can definitely recommend StepChange. When your mind is tangled like a ball of wool (I used to say my mind felt just like a Brillo pad) they help so much. 

All the very best to you. 

sourcrates

I am by no means an expert on bankruptcy laws, and hope some of the regular experts on this board can clarify this for you, but the way I see it, bankruptcy is like drawing a line in the sand, you have what went before, and what comes after.

If you went bankrupt straight away, and allowed the OR to deal with your property, at the time you went bankrupt, your shortfall debt will not yet exist, so will not be included in it.

Once the house is sold, and creditors and fee`s are paid, any shortfall debt that remains, will have been accrued after the fact, and therefore will not be vested in your bankruptcy, and you will become liable for it.

So my earlier advice still stands, do not declare bankruptcy yet, you may end up worse off than you are now.

Iansellers

Thank you Sourcrates, your advice makes perfect sense about the shortfall wouldn't exist so makes sense as you say to let property sell at auction and then there will be a shortfall figure then, that's probably the best time for me to declare bankrupt. Really appreciate your help, that's what's great about this website, glad I came across it.

Iansellers

Thank you MalMonroe for your kind words. It's great that this website and chatroom exist because speaking to people who have been through it or have knowledge is so valuable to people like me who have no idea what to expect.  Really appreciate your advice, its given me a lot to think about.

JCS1

Once the property was repossessed the debt becomes unsecured and would then be included in the existing bankruptcy.

Just make sure you don't sign any paperwork acknowledging the mortgage as a debt after declaring bankruptcy.

sourcrates

JCS1 said:

Once the property was repossessed the debt becomes unsecured and would then be included in the existing bankruptcy.

Just make sure you don't sign any paperwork acknowledging the mortgage as a debt after declaring bankruptcy.

Yep, on further research JCS1 is right, you would be covered if you went bankrupt beforehand.

I wasn`t sure on that one.