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

Moderators: TalbotWoods, JaneClack

By monkeycheese
#369633 Hi Guys

Going down the bankruptcy route and I have a house that I rent out to tenants.
The house is in negative equity (probably about £15,000) and I don't know if I would be better handing the keys back to the lender before proceeding with bankruptcy, or to just let the OR deal with it in bankruptcy?

A debt advice line that I called, said that bankruptcy wouldn't deal with the property/get rid of it, but I thought that was the main point of bankruptcy, that you loose all properties, etc?

I don't want to keep it, is there a chance that I may end up being stuck with it, if I go into bankruptcy with it?

Any advice would be good! :o
User avatar
By TalbotWoods
#369863 Hmmm

Always a difficult one to answer, becasue so much depends on you.

But

If you do not want the property, the you have two options

Hand the keys back just before bankruptcy BUT DO NOT SIGN ANYTHING the mortgage company ask you to. But the property really need to be vacant, if there are still tenants, then a whole raft of other legislation comes into play, which will leave you liable. So if you are going this option make sure the tenants are out.

Hand the keys to the OR, and let him deal with it, BUT again the property need vacant possession.

Now look at it this way, if the property is handed to the OR, he wil take time handing back to the lenders, who will take time selling at auction, who will be ....

It you hand it to the Lender. then the sale will take place sooner..

The aim is to get rid of it sooner rather than later, so the balance goes into the bankruptcy pot.

I am also goign to suggest giving the Insolvency Service Helpline a call, and as a HYPOTHETICAL question on which option THEY prefer, as that should be your director in this matter.

You can contact them via the phone on

0845 602 9848

Or via a secure online web mail at

http://www.insolvencydirect.bis.gov.uk/ ... eneral.htm

Remember these are the contacts for the Insolvency Service itself, not an advice line, so pleas be guided by what they infer, as they will not give you a direct answer (well what do you expect they are a government department).

So ask hypothetical questions such as "For ease of work for the Official Receiver, would they prefer if I handed the keys to them or handed them to the lender. I know you cant tell me definitively, but from experience which is more preferable", and so on

Tim
By monkeycheese
#370183 Thanks for your reply, very helpful.
So, if I hand the keys back (it sounded like this was the best option), how do I do this?
Do I just call them or are there letter templates on the internet?

I hadn't told the lender I was renting it, so I will just say its empty and that they can take it.
When the OR looks at my accounts though, he will realise I was getting a rental income from it, does he have a duty of care to tell the Tax office about that income? :?
and if he does and that tax is back dated, can that go into the bankruptcy!?

On a separate note, I think I know what I'm doing with my car but would like to check your thoughts...
I have a car on HP worth about £20k, £7k is HP and rest is equity.
Rather than hand it back to the finance company and risk them getting to keep the equity that's in it, I was going to sell it myself and pay off the finance company.
I will obviously sell it for as much as I can privately and then after paying the finance off I was going to get 2 cheap cars for me and my wife (I think the OR will let me have these but can always give to OR if needed).
Is this okay or do you think it would be much easier to just give the car to the OR to deal with?

Thanks in advance!
User avatar
By TalbotWoods
#370223 If you are goign to hand the keys back, just hand them over at the counter or in the office, with a SHORT note form you telling them that the property is vacant (which is MUST be) and that you are about to enter into bankruptcy. Inform them that as soon as you know the bankruptcy number and Official Receivers Number you will inform them.

You must alsi inform all the utilities and council tax ( make sure you get the council tax exemption as well)

If the car is on HP and you sell it privately YOU WILL BE DONE, as you cannot favour one creditor over another, if you do the OR may well overturn the transaction, get the money back and leave you with a debt POST bankruptcy, and almost definaltuy a Bankruptcy Restriction Order.

But because it is on HP, then the OR will not have an interest in it, as you dont own it, so will normally exempt the car. If the HP company are happy with you making the repayments, then (and providing they are not ridiculously high) you will be allowed to keep it.

If you want rid of that debt as well, then you must declare the car in the bankruptcy informing the OR that you no longer want the car. Tell the HP company as well. They will collect the car and it will be sold at auction, and usually at a significant loss!. But DO NOT SELL THE CAR, as the buyer will not appreciate a knock at the door as the police take the car away, (as despite your actions the OR will also treat this as an asset in your bankruptcy that you tried to put beyond his reach) nor will you appreciate being left with a fraudulent debt!

No the OR doesn't share information with HMRC, unless it is absolutely obvious that there is fraud involved, and renting out a house is not a huge thing nowadays. If on the other hand you were renting several out living the life of luxury, and not paying a penny in tax, then that woudl be another matter. It is about proportion.

In all seriousness, let the OR deal with everything, that way you cannot be accused of being awkward, they know what is what and where, and can deal with it much more easily.
By monkeycheese
#370313 Thanks for your latest reply, but I'm now really confused about the car situation!
National debtline pretty much told me the opposite, they told me that as long as I got Audi's permission (which I have) then I will be best selling it before the bankruptcy as long as I sell it for the correct price and don't under sell it.
Otherwise, He said that depending on the contract they maybe able to take the car and keep all the equity in it.
He said I'd have to be careful but as long as I didn't go and spend all the money and I explained it to the OR, then it should be fine?

Because there is a lot of equity in the car, I thought that the OR would want to sell it or ask the finance company to sell it, do you really think they would let me keep it!?
I would love to keep it!
The car is worth about £21k, I owe Audi £7k, so there is £14k equity in the car. My monthly payment is only £152.
After looking at these figures, do you think it's possible they would allow me to keep it??
User avatar
By TalbotWoods
#370363 In simple terms yes.

The car is on HP, so you do not own it, simple as that. It is owned by Audi, so until such time as the final payment is made, then and only then do you legally own it.

This is from the case manuals used by the ORs

Hire purchase agreements

These agreements are so called because initially the finance company hires the goods to the customer and after a certain number of payments have been made, the customer has the option to buy the goods, usually by making a nominal final payment. Until the customer has exercised this option to purchase, the goods are the property of the finance company and may not be disposed of by the customer.


Vehicles with third party interest

Whilst the insolvent may be the legal owner of a vehicle, the vehicle may not be available to the official receiver as an asset. Other parties (and, primarily, we are talking about finance companies in this context) may have an interest in the vehicle or may retain limited ownership rights over the vehicle.


Also you may consider the car is worth £20K, bit beleive me it's actual worth as far as the Finance Company and the OR is concerned is what can be raised at auction, minus all fees and costs, which can reduce this down to just a few £K. I have seen a £28K Range Rover, sold for £5.5K at auction, and then all the fees plus costs, admin charges, etc., had to be removed, so total value raised for the creditors was £4250!!!!

But al this aside, yes the OR will want to know what type of agreement you have, is it Hire Purchase ( as you have alluded to) or a loan type agreement. So have a look a the agreement as see who retains ownership whilst you are repaying the agreement, but I suspect as it is Audi, they will retain ownership which makes it safe!
By Jane1962
#370663 Hi Monkeycheese

I went bankrupt with a HP car and as Talbot says the OR don't want to know about it, Ford let me keep up the payments, as along with my mortgage I had never defaulted on it.

Hope you get it all straight in your head.

Regards

Jane
By monkeycheese
#372793 Thanks Guys,

I have just called Audi finance customer services and unfortunately, they said that I would have to give the car back in bankruptcy. They would only let me keep up repayments in an IVA.
If the OR was going to let me keep making the payments, would he even tell Audi that I was going bankrupt?
They obviously wouldn't know I was bankrupt unless the OR told them, or do they have to tell all creditors including HP companies?

If Audi take the car back, then I wouldn't have any money to buy a cheap car, as they would keep all the equity in it.
If the OR would tell Audi, then I think I will definitely have to sell it, pay Audi off, and buy a cheap car. I will then take any profit into the bankruptcy with me and give it to the OR.
This should be okay shouldn't it, as long as I'm careful and transparent?
The OR would be getting £10k+ to distribute between the creditors then, as opposed to getting nothing from Audi?

One other question to ask; would they OR tell my letting agent that I'm going into bankruptcy?
I read somewhere that they only tell them if you are in arrears (which I'm not)?

Cheers - MonkeyCheese!
User avatar
By TalbotWoods
#373033 I can see where you are coming from with the car, but please please also run this past the Insolvency service, and be guided by their interpretations, as I am not sure how they will look on this option. They can be very difficult with assets, etc, they may well go for this, but they may also bulk at it, so please check

You can contact them via the phone on

0845 602 9848

Or via a secure online web mail at

http://www.insolvencydirect.bis.gov.uk/ ... eneral.htm


With regards the landlord, yes and no.

Yes they are legally obliged to inform your landlord or the landlords agent, but

Most do not, if you can provide the tenancy agreement and prove that the rent is fully up to date (either by papertrail on bank statements, or via a rent book.) Some people ask the letting agents for a statement off accounts informally giving excuses like is is needed by the accounts, etc. BUT even if you provide all the proof in the world a small minority of ORs will contact, because that is what the book says to do!

What may be of interest though is that nearly all letting agents are more interested in the rent coming in than your bankruptcy, so if the rent is up to date, that is ALL they care about, and except where there are significant arrears, I have never heard of a letting agent terminating an agreement when a tenant goes bankrupt!

Tim