In Bankruptcy am I at risk of losing my home?

When an individual considers personal bankruptcy, one question is commonly asked and provides a massive amount of anxiety: “In bankruptcy am I at risk of losing my home?” With all the horror stories surrounding the procedure, it’s understandable that people get concerned when considering entering into bankruptcy.

Thankfully, it’s not always the case that you will lose your home.

For renters

Your landlord will be informed of your bankruptcy if you rent. Usually, as long as you make your payments on time, you should be able to stay in your home. However, you’d be best off seeking legal advice to understand what may happen under your tenancy agreement.

If your rent is deemed excessive, you may be asked to seek accommodation with a lower rent. Doing so enables surplus monies to be paid into your bankruptcy estate for the benefit of creditors.

For homeowners

If you own your home, whether solely or jointly owned, freehold or leasehold, mortgaged or with no secured lending, the Official Receiver or Trustee may have to sell your home to go towards paying your bankruptcy debts.

You must keep up with your mortgage repayments if your home is mortgaged. If you default, your lender could take legal action to sell your home. It’s worthwhile thinking about contacting your lender to ascertain whether you could have a payment break, reduce your payments or change the type of mortgage you have. Being bankrupt does not mean that you cannot have a mortgage.

Living with a child (still in full-time education or younger) or a dependent means it’s likely any sale of your property is put off until the end of the first year of bankruptcy. You should use this extra time wisely to weigh up your options or seek alternative accommodation.

You’ll likely be able to keep your home if:

• There is no equity (a trustee will use the term “beneficial interest”) in your home.
• If a partner, relative, friend or third party is able to raise sufficient funds to purchase the beneficial interest.

Avoiding bankruptcy

Bankruptcy isn’t the only option for individuals who’re unable to repay all their debts. A popular debt relief solution is an Individual Voluntary Arrangement (IVA); a formal repayment plan and depending on your circumstances, a potential alternative to personal bankruptcy.

A licensed insolvency practitioner manages the procedure, which allows you to repay your unsecured debts at a rate tailored to what you can afford. It also means creditors are likely to see a higher return than if you went bankrupt, you can avoid having to sell off high-value assets or risk losing your home.

In summary

Although going into personal bankruptcy is seldom a pleasant prospect, it doesn’t automatically mean you’ll get turfed out of your home. If you rent, your landlord will be informed of your situation. You should be fine if you keep up with your payments, but we’d advise seeking legal advice. If you own a home, you might have to sell it. However, this isn’t a foregone conclusion, and depending on your living circumstances and your mortgage provider, you may be able to come to an agreement.

Best advice is; don’t worry about your situation, and take all the “well-meaning advice dished out at the pub” with a pillar of salt. For professional, free advice with no obligation, give Wilson Field a call to put everything into perspective. As they say, a problem shared is a problem halved.