What happens to my house if I go bankrupt?
One of the main worries when dealing with bankruptcy is what happens to your home. Putting a plan in place can help to deal with this important issue.
Bankruptcy and your home
In some cases, your home may need to be sold to release the equity, but this may not happen for up to three years – which gives you time to put a plan in place.
Someone called an Official Receiver takes control of your property and any assets you have. They also consider whether your home has enough equity in it to make it worth selling to repay some of your debt.
Equity, beneficial interest and what this means
Equity is created when your home increases in value for more than it was purchased for.
So, for example, if you purchased your house for £130,000 and it is now worth £170,000, you have equity of £40,000. It also reflects the portion of your property that you have paid for (the share that isn’t outstanding on your mortgage).
When you own your home – whether it is solely or jointly owned – you have a share in the equity in the property, which is also known as your beneficial interest.
The ownership of your beneficial interest is automatically transferred to the Official Receiver dealing with your bankruptcy.
If they believe the amount is enough to clear a large amount of your debt they may demand that the property is sold. They have three years to decide what to do with this. This means you should be able to continue living in your home until a decision has been made on how to deal with your beneficial interest.
What if there is no equity in my property?
If there is no equity in your home it’s unlikely it will be sold. But it’s worth noting the Official Receiver does have control of your property for three years from the date your bankruptcy order is made.
If the property increases in value in these three years, they may review again whether or not it can be sold – or a charging order should be put on it – to release any equity.
A charging order means that, if you sell your home in the future, a certain amount of the equity will need to be paid to the Official Receiver to then give to your creditors.
What to do if your home is being sold
The Official Receiver has the choice of doing two things with your property. They can either sell it to release the equity or place a charging order on it.
It’s worth noting that if you own your home with a partner they may be able to buy out your share to keep the property. It doesn’t have to be your partner though; a friend or family member can also do this.
This means your Official Receiver would not be able to sell it. However, it’s important you go about this in the correct way – you cannot give away your property or sell it at a lower price than it is valued at to avoid it being included in your bankruptcy.
Finding alternative accommodation if necessary
You may find it hard to rent a property though because most landlords and lettings agents check the Insolvency Register – which you will be listed on – before accepting tenants.
If your bankruptcy puts you at risk of homelessness, it’s important you speak to someone. A charity, such as Shelter, may be able to help. Or you can talk to your local council which may be able to help make arrangements for temporary accommodation.
What if I am renting my property and have been made bankrupt?
If you apply for bankruptcy – or a creditor applies on your behalf – and you are renting your home, you may be able to stay in your current property if you are up to date on rent payments.
You should check your tenancy agreement though to see if there is a clause which states your tenancy may end if you are declared bankrupt. If this is the case it’s still a good idea to speak to your landlord – you may be able to come to an arrangement that allows you to remain in the property.
However, if you are in rent arrears these will be included in your bankruptcy and your landlord may evict you if they are not paid.
Do I have to keep paying my mortgage while bankrupt?
Yes, mortgages are a secured debt which means they are not included in your bankruptcy.
While there is a chance your home may be sold there are ways of reducing the likelihood of this happening – your partner buying out your share in the property and having little to no equity to make it worth selling are both things that can prevent the sale.
We have more information here about how to reduce the chances of your home being sold.
However, if you want the best chance of being able to keep your home, you should continue making your monthly mortgage and bill repayments in full and on time.
You may worry you will be unable to afford your mortgage repayments. Your debt repayments will no longer be in place though as a result of the bankruptcy, so this means the money you were putting towards these could now be used for your mortgage.
Support available when dealing with bankruptcy and your home
The risk of losing your home and current standard of living is hard for many people to deal with. We understand it can take a toll on your mental health, so it’s important you seek support if you feel you may be struggling with feelings of depression, anxiety and stress.
The charity Mind and the Samaritans are both resources available, with helpful teams of people who can lend an ear if you need to discuss any issues. Shelter can also offer support, if your home is going to be sold and point you in the right direction.
If you would like to know more about bankruptcy and what happens to your home, our team at PayPlan can discuss this issue with you further and offers free, impartial advice on all areas of debt. Please call 0800 280 2816 or fill out our contact form for a callback.