Will I Lose My House If I Go Bankrupt?

Ask anyone who has faced bankruptcy what their biggest fear was: losing their home. Unfortunately, if you go bankrupt and your home holds value, it becomes a target for creditors to seize and sell in order to recover funds. It’s important to understand that every bankruptcy case is unique, and the outcome concerning your home cannot be guaranteed. There are multiple strategies available, and bankruptcy doesn’t have to be viewed solely as a negative process. For many, it offers a chance to start fresh. In this article, we will explore what happens to your house if you go bankrupt and answer the question: “Can I lose my home in bankruptcy?”

What Happens To My Home If I Go Bankrupt?

Firstly, you need to determine whether your home is in positive or negative equity. If your home is in negative equity and there is a slim likelihood of it appreciating in value over the next three years, it may be deemed “safe” during bankruptcy. The Insolvency Service or Trustee overseeing your case has a three-year window to decide what to do with your property. If it’s in negative equity, they may return the property to you. However, if it’s in positive equity, they have the authority to sell it. It’s important to note that there is no guaranteed right to stay in the house for three years.

If you fail to reach an agreement with the Insolvency Service or Trustee. Repossession proceedings may commence as early as three months from the date of bankruptcy. In cases where there are dependent children residing in the property, the Trustee may allow a one-year grace period before initiating repossession proceedings. Some individuals might consider waiting one year before negotiating with the Trustee, but it is crucial to think commercially.

By continuing to pay your mortgage, you effectively increase the Trustee’s interest in your property by reducing the capital each month and increasing the equity. If your property is in positive equity, you need to make an effort to decrease the Trustee’s equitable interest in it. Failing to do so can result in the forced sale of your home. It’s important to note that keeping your home in bankruptcy is rare, and even if allowed, it typically only postpones the sale rather than preventing it. In the event of a property sale, the proceeds will be distributed among your creditors. For more detailed information, you can visit the Insolvency Service website.

Appointment of a Trustee

When you are declared bankrupt, the Insolvency Service will contact you and appoint the Official Receiver (OR). The Official Receiver’s role is to appoint an examiner to review your assets and finances. Once the initial information is gathered, the Official Receiver may assign your case to a Trustee.

Typically, a Trustee will be appointed if your home is in positive equity exceeding £15,000. If the equity falls below £15,000, the Official Receiver will likely oversee the case, and negotiations will take place with them. The appointment of a Trustee in bankruptcy is a critical moment. A Trustee is an independent party who acts in the best interest of the creditors. Understanding the motivations of your Trustee within your bankruptcy is crucial.

The Trustee’s main responsibility is to recover and sell your assets to pay your creditors, prioritising the payment of their fees. Our main advice to clients is always to maintain a commercial mindset and consider the bigger picture. We understand that bankruptcy can feel personal and emotional, but with the right advice at the right moment, you have a chance to initiate negotiations.

Can I Sell My House in Bankruptcy?

Many people believe they can outsmart the Trustee by selling their home before declaring bankruptcy, but this is not a practical approach. If you sell your home for less than its worth, you could face serious issues. Moreover, you cannot transfer your property or any share of the property to anyone else before your bankruptcy. The Trustee also has the power to apply to the court to overturn any sale and return the property to you, allowing them to repossess and sell it. They can do this for sales up to five years prior to your bankruptcy. This period can be extended if there is evidence to suggest you were already facing financial difficulties at the time of the sale or transfer.

What if You Share Your Home?

If you jointly own a property with another party, you will have an “interest” in the property. Your share of the property is usually equal, but it can depend on factors such as tenants, deposits, mortgage repayments, and property maintenance. However, this does not prevent the Trustee from selling the property. Instead, the other person will receive payment for their beneficial interest when the house is sold. If you think this may affect you, it’s advisable to seek advice as it can be a complex aspect of bankruptcy.

The Difference Advice Can Make

By seeking help from experts, you can not only save your family home but also avoid facing gruelling negotiations alone. Ignoring the issue is a common reaction to the stress of bankruptcy, but it’s entirely the wrong approach. By taking the appropriate measures, it is possible to safeguard your family home, and Bell & Company is available to provide assistance. For more information on bankruptcy, you can refer to their free guide.

Bell & Company’s team of consultants conducts thorough due diligence to investigate your entire situation. Based on this information, they devise a tailored strategy to achieve a favourable outcome for you and your family. They assess the level of equity in your home, any beneficial interests, and the best way to negotiate with your Trustee. By leveraging strategy and experience, Bell & Company can help you take advantage of the available options. Personal insolvency and bankruptcy are highly stressful situations, but with the right help, everything is negotiable.

Contact Bell & Company today to save your home and start your journey to recovery.