Can I Keep My House if I File Bankruptcy
How to keep your home during Bankruptcy
One of the biggest fears when it comes to bankruptcy is the potential to lose your home. It’s like losing your safe place. With all the challenges and stresses that financial problems bring, it’s the one place you can feel secure.
The issue with bankruptcy is you risk being stripped of pretty much everything you own, particularly assets like your home. Now the normal procedure if you’re being made bankrupt is for your property to be sold and the proceeds distributed amongst your creditors. However, it doesn’t always have to be this way.
TRDG has some information below that could prevent your home from being taken from you.
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When can you stop or delay the sale of your home?
So good news, there are actually three scenarios in which you might be able to stop your home from being sold. These are:
SCENARIO 1: If you have a partner or child living with you
In this scenario, the trustee (which in this case will likely be the official receiver) cannot, in most cases, sell your property for at least a year from the date of the bankruptcy order. The bankruptcy order is the date the judge declares you bankrupt. This is important for you to know, as this gives you the opportunity to take control and find a way to rehouse yourselves.
SCENARIO 2: If a family member or friend is willing to buy your house from you or buy your share of the house.
You can stop the trustee (official receiver) from selling your home in this situation. You might also see this described as ‘buying the beneficial interest of the property’. Under these circumstances, the trustee will need to be contacted for this to happen. Many people do this and successfully manage to remain in their home.
SCENARIO 3: If the beneficial interest (i.e the potential profit from a sale or equity) in your property is less than £1,000.
The trustee cannot sell your property in this scenario. It's also important to note there is a three year time limit for the trustee to put your home up for sale. If at the end of three years the beneficial interest in your property is still under £1,000, the property ownership will be returned to you. A situation like this may mean you keep your home even after bankruptcy.
When can't you stop or delay the sale of your home?
Unfortunately, you can’t stop your house from being sold every time. There are in fact two scenarios where you cannot stop the sale of your property. These are:
SCENARIO 1: If you are the sole owner & the property equity is more than £1,000.
If the equity in the property after any secured debts (i.e. the mortgage) has been paid is £1,000 or more, you won’t be able to stop the sale of your home. If the property is to be sold, the mortgage amount left (i.e. what you have left to clear your mortgage) will need to be cleared first and any other secured debts on the property. The remaining amount after the property is sold is called the beneficial interest or equity. This is the amount the property was sold for minus the secured debt.
Here’s an example: If your house sells for £100,000 and the mortgage is £80,000. The beneficial interest will be £20,000. £100,000 - £80,000 = £20000.
SCENARIO 2: If you are the joint owner & the property equity is more than £1,000
If your share of the property, after the property is sold, leaves you with £1,000 or more beneficial interest (equity) then the property may be sold.
Here’s an example:
You’ve bought a house with your partner. The ownership is 50/50. The house sells for £100,000 and the mortgage outstanding is £80,000. The beneficial interest in the property is £20,000. However, as the ownership is 50/50 with someone else, your beneficial interest is £10,000, which will be used to pay your creditors.
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The information in this article is considered to be true and correct at the date of publication.