A condition of bankruptcy in the UK is that all the bankrupts major assets (including their home if they own it) need to be sold to provide funds to pay some money to their creditors. This applies even if the bankrupt shares ownership of their home with a partner. If nothing is done the administrators of the bankruptcy will be able to force the sale of the home at any time from 12 months after the bankruptcy is declared. The non-bankrupt partner will be forced to remove, but will receive their share of the sale price once any mortgages and secured loans have been paid off.
If you and your partner are staying together you should consider whether there is any possibility of removing the family home from the ownership of the debtor before they declare themselves bankrupt. To do this it is not necessary to change the name on the land registry entry or any details of the mortgage. All that is required is to transfer the “beneficial interest” that the debtor has in the home, which for most couples will be half the value of the equity in the home over and above the mortgage and any secured loans. E.g:
If a couple own a home valued at £250,000 and have a mortgage of £200,000 then the beneficial interest of each person would be £25,000. Note that a genuine valuation (obtained by averaging valuations from 3 estate agents) needs to be used. You cannot get away with under valuing your home.
In this instance the partner that is not declaring bankruptcy would need to pay the one that is £25,000 for their beneficial interest in the home (you need to get some documents drawn up by a solicitor to do the transfer properly). This money could either come from the partners own money, or from relatives, or from a loan or re-mortgage in the sole name of the non-bankrupt partner. This last option used to be very popular with the ready availability of self-cert mortgages but has become rather more difficult to arrange at the moment. Consult a specialist mortgage broker (don’t even bother approaching a main-stream lender) to see what is available.
If you there is too much equity in your home for you to be able to afford to buy out your partner then you might consider trying to delay the bankruptcy until house prices have fallen further. Lastly, if you are in negative equity and you are sure that you and your partner will be able to afford to continue to pay the mortgage then you will be able to buy your partner’s beneficial interest for a notional sum of £1. It is important to consider whether you and your partner are really committed and able to pay the mortgage, since if you have the house re-posessed after your partner has been declared bankrupt then you will both be saddled with a new debt called a “mortgage shortfall”.
If the beneficial interest is transferred as described above then the administrators of the bankruptcy will not be able to force the sale of the family home. It is also worth noting that most holders of unsecured debt will be more willing to accept “full and final” offers to settle debt once they know that the debtor does not have any major assets.
Tags: Bankruptcy, bankruptcy home, Debt Advice, Debt Problems, insolvency
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