What Happens to a Joint Mortgage if One Partner Declares Themselves Bankrupt

If your partner declares themselves bankrupt and you have a joint home/mortgage then clearly this is going to be a very worrying time.

The good news is that mortgages (being secured debts) are not directly affected by bankruptcy which only applies to unsecured lending (credit cards, personal loans etc.).  As long as you and your partner have the income to pay the monthly mortgage payment then this will continue as normal.

The bad news is that the value of your partner’s equity in the home will probably need to be paid into the bankruptcy to provide funds to pay back your creditors.  In the UK this would always be in the case but in the US there are state-by-state rules on whether your primary residence is exempt from bankruptcy.

In the UK you will be given a period of 12 months from the date that bankruptcy is declared to reach a settlement with the person administering the bankruptcy (either a trustee or the insolvency service).  If no agreement can be reached then a sale will be forced after the 12 month period has passed.

If the value of your home has dropped to below the value of the mortgage then you can buy your partners interest in the home for a notional figure.  This is one of the rare occasions where negative equity is a good thing. 

Tags: Bankruptcy, debt, Debt Advice, Debt Solutions, mortgage bankruptcy