Can I Keep My House if I File Bankruptcy
Can I keep my home if I am made Bankrupt?
One of the biggest fears regarding 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 everything you own, particularly assets like your home. The standard procedure for bankruptcy 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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Can I stop the sale of my house?
So, the good news is that there are 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 (who will likely be the official receiver) cannot, in most cases, sell your property for at least a year from the bankruptcy order date. The bankruptcy order is the date the judge declares you bankrupt. This is important for you to know, as this allows you 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.
In this situation, you can stop the trustee (official receiver) from selling your home. You might also see this described as ‘buying the beneficial interest of the property’. Under these circumstances, the trustee must be contacted for this to happen. Many people do this and successfully manage to remain in their homes.
SCENARIO 3: If your property's beneficial interest (i.e., the potential profit from a sale or equity) 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 the beneficial interest in your property is still under £1,000 at the end of three years, the property ownership will be returned to you. A situation like this may mean you keep your home even after bankruptcy.
When can I not stop or delay the sale of my home?
Unfortunately, you can’t stop your house from being sold every time. There are, in fact, two scenarios where you cannot prevent 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 mortgaged amount remaining (i.e., what you have left to clear your mortgage) will need to be cleared first, along with any other secured debts attached to the property.
The remaining amount is called the beneficial interest or equity. This is the amount the property was sold for minus the secured debts.
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 = £20,000.
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), 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.
Remember to read The Real Debt Guy's final thoughts below!
The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.