If I go bankrupt, will I lose my home?

October 1, 2017

Bankruptcy is seen as a last resort for people with unmanageable debt. It can represent a new start without the burden of debt, but it does have serious repercussions including the potential loss of your home.

The Official Receiver or a licensed insolvency practitioner will act as your Trustee in bankruptcy. It’s their role to oversee and administer the sale of your assets to repay creditors, and this process continues even after you’ve been discharged.

Will you lose your home in bankruptcy?

When you go bankrupt, all assets pass to the control of your Trustee, including your home. If you’re joint owners with a spouse or partner, they may be able to buy your interest in the property from the Trustee, however, so it doesn’t necessarily mean that it will be sold.

The Trustee may be willing to delay the sale for around a year following the start of your bankruptcy, if the property is jointly owned or you have children living there. During this time your ‘beneficial interest’ in the property remains with the Trustee, but your spouse, partner, family member, or a friend can seek the finance needed if they want to invest.

Alternatively, this period of time allows you to make alternative living arrangements.

How your beneficial interest in the property is valued

If you own the property yourself, and there is no mortgage or other loan secured on it, your beneficial interest is its full value. Should there be a mortgage outstanding, the value of your interest is calculated by deducting the amount of mortgage remaining, along with any other charges secured on the property.

In jointly owned homes, the beneficial interest for each party is generally an equal proportion of its net overall value. If your beneficial interest exceeds the total amount of debt owing, plus fees and other costs, the Trustee may decide to claim the full amount to also pay interest to your creditors.

Selling your beneficial interest

If a family member or friend wants to buy your interest in the property, they should seek legal advice, and then approach the Trustee if they decide to go ahead.

If there is less than £1,000 of equity in your property, or it’s in negative equity, it wouldn’t be worthwhile for the Trustee to sell, but they’re likely to arrange for a ‘charging order’ on the property to protect their interest. This allows them to claim their proportion of the proceeds if it’s sold at a later date.

What about rented homes in bankruptcy?

If you rent your home, and are in arrears with the landlord, the arrears will be included in your bankruptcy order and you may have to move out. Some tenancy agreements include an automatic eviction clause in the event of a tenant’s bankruptcy.

In other cases a landlord might be willing to allow a third party, such as a partner or family member, to pay your rent, in which case you may be able to remain in the property. The fact that bankruptcy is public knowledge means you could experience difficulty in securing a new tenancy agreement without a guarantor, or having to pay a higher deposit.

If you’re worried about losing your home, Northern Ireland Debt Solutions can provide further professional guidance on the implications of bankruptcy. We’ll ensure you understand the consequences, and assess whether there are any viable alternatives. Call our expert team to arrange a free same-day meeting in complete confidence.

Lawrence O'Hara

Insolvency Adviser

Tel: 028 2132 6269

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