Questions you have before making a decision to go Bankrupt and the Bankruptcy process

Moderators: TalbotWoods, JaneClack

ByLeeA
#471980 Hello,

If there is a charging order against a property before you enter bankruptcy does it still stand after or is it that specific one cleared and a new one created for the insolvency agency?

Thanks

Lee
User avatar
ByTalbotWoods
#471981 Hi Lee

For all intents and purposes it will exist in it current form.

There was a Appeal Case back in 2009 where this was tested, and it was ruled that providing the Charge is in place PRIOR to bankruptcy then the Bankruptcy cannot remove the rights of the Charge owner in particular it was stated "it was clearly the intention of the legislature that a creditor who had completed execution before the bankruptcy order was made was not to be deprived of his security by reason of the bankruptcy order alone"

[See: Nationwide Building Society v Wright and Anor, [2009] EWCA Civ 811, [2009] BPIR1047.]

So no a new Charging Order is not created, the bankruptcy will not wipe the original Charging Order and the original Charging Order (and the amount that it applied to remains). Though not fully classed as a secured debt, it is treated as a secured debt.

Tim
ByLeeA
#471985 Hello Tim,

Thanks for the information. How does it work with regards to the cash amount against the charging order though. The amount is around 40k against one person on the deeds of the property the other person has no connection to the 40k debt.

If the house was sold after bankruptcy for instance how would the charging order come into affect would it be eligible against 100% of the capital that is remaining or 50% ?

Once the house is then sold and the charging order dealt with is the debt then wiped off? If there is an amount outstanding what/who would that be against?

Sorry for the amount of questions but as you can see its got quite complicated.

Regards

Lee
User avatar
ByTalbotWoods
#471988 Hi Lee

Slightly different edge to it now.

If there are two of more joint owners, then there would be a restriction placed against the beneficial interest of the property.

For example if there were three joint owners, and their was equity to the tune of £90K then YOU would have a beneficial interest of £30K, so the restriction is against YOUR beneficial interest ONLY.

So in your case, two owners thus 50/50 split of equity, the Restriction is against your share only, but beware that if you argue that your share is less than 50% be prepared to have to argue that in court at your cost.

The other aspect of this is that in the same way a Charging Order is not extinguished by bankruptcy neither is a restriction.

Now the nasty, the OR can declare an interest in your Beneficial Interest, so that means in the future (and that can mean many years) the OR can claim back some or all of your share of the beneficence interest (equity) after the secured debt has been paid off. See it happen!

Something to be aware of if you enter into bankruptcy:

A. Expect the restriction holder to get quite difficult with you, they will see that you have entered into insolvency so may be worried that the other joint owner may also do so in the near future. That then frees up the option of surrendering the property to the OR it total, and getting the debt included into your original bankruptcy, especially if there is negative equity!

B. Do not necessarily think that the OR will allow you funds to pay the secured debt; if the OR considers that the debt was obtained whilst you were technically insolvent or that you are living well beyond your means they can refuse to allow you the funds to pay the secured debt. We have seen it happen.

C. Be prepared to find the joint owners Credit Files to to potentially be quite badly affected by your bankruptcy, this is because there will be is a joint financial link between you both. So your bankruptcy will normally affect their ability to obtain credit or services much in the same way yours will.

You have asked a couple of quite specific questions here, can I ask if you have also sought professional help whilst deciding if bankruptcy is the best option for you. I am asking this because this is one question you will be be asked by the Court, and you have to also declare it on your application form

Tim
ByLeeA
#471989 Hi Tim,

No we haven't got any professional advice yet. Just to clarify I'm not the person considering going bankrupt my wife is, I'm the other person on the deeds. I actually went bankrupt 4 years ago when my business imploded in the recession. My wife manage to avoid it at the time but we had a second property that we had a number of issues mainly with the mortgage company themselves and we ended with a shortfall when it was sold. I wasn't ( eventually ) included in that debt as it was considered a contingency debt ( I think that's the term that was used ).

When the mortgage company started chasing for payment it eventually went to court and due to my wife's very low income she was told to pay £1/mth. Which was rather ironic because before they started getting aggressive with chasing I had thought I was eligible to it and was paying a lot more.

We are now stuck in the odd situation of me personally having no debts and I can't really incur any due to my poor credit rating but I have a good job. My wife has the 40k against her name with no real means and neither of us have the inclination to try. The mortgage company dithered for two years, 3 times it was 'valued' to be put up for sale and eventually they just auctioned it and sold it for peanuts, hence the 40k shortfall.

The main concern/issue I have is that if she goes bankrupt and then the house is sold voluntary or involuntary whatever money is deemed eligible to the pay charging order will the outstanding ( very likely situation ) of the debt be written off, or will they have grounds to start chasing the outstanding amount?

Regards

Lee
User avatar
ByTalbotWoods
#471991 Hi Lee

If the house is given up during bankruptcy, then the restriction on the CCJ will become unsecured again, irrespective of if it was voluntary or involuntary.

If that happens then the debt will ultimately form part of the bankruptcy and will be wiped out. However, if there is also equity in the property the OR will take it first, only then will all the creditor get a consideration and that does include former secured debt holders. So even if there was £40K equity it is unlikely the restriction holder would even see a percentage of what is owed, and they would have to wait for some time as well. Normal creditor repayment is Mortgage Company, OR, Government Debts, then other creditors, after the property is sold!.

Something to consider here is that if there is negatively equity in the property, unless you voluntarily surrender it, then the OR wont necessarily want it or take it. If that happens then the debt remains, so in negative equity situations you must surrender it!If you retain the property then the debt will remain as it will excluded.

OK you have been through the mill, so you are aware of a lot of the pitfalls with bankruptcy. I would still suggest talking the options through with one of the organisations below, just to make sure you haven't missed a trick or two, that could mean this can be dealt with without having to go bankrupt.

I say this because there is a court enforced £1 a month repayment and when the property is sold, if there is equity, half of it will be untouchable (as it is yours). So in five years time if you sold and there was £90K equity, she would loose £40K of her equity but your £45K would be safe. If you surrender in bankruptcy you may lose the chance to your £45K! Just saying loikes.

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Tim
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