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. 

photo credit: eric731

Debt is the word seemingly on every one’s lips. Whether it be concerning governments, financial companies or individuals everyone is interested in whether they have too much debt. With the economic situation going from bad to worse it is worth reviewing your situation to see if you have too much debt and whether you are (or potentially could in the future) be in a debt crisis situation.

Debt Early Warning, Debt Problem, or Debt Crisis?

There are no exact definitions here, but I’ll have a go at defining these states and the likely outcomes if you do nothing. Also what steps you need to take to get yourself free of debt.

Debt Early Warning

Do you worry about the amount of debt you have (whether secured or unsecured). Is it starting to represent a significant proportion of your monthly budget? (If the word budget is a strange one to you then you have more work to do before working out how serious your debt problem is). Can you only afford luxuries like holidays or meals out by putting them on a credit card? If you answered yes to any of these questions but you are still making all your regular payments then I would suggest that you are at the “Debt Early Warning” stage. You really need to do your monthly budget and a monthly balance sheet of all your debts to see if your debt situation is getting worse or better. If your monthly budget shows a deficit or your your monthly total of debts grows each month then prompt action is required to get your situation under control. Do nothing and you are headed down the path to debt problems and crisis. Trim your spending until your budget shows an excess of income over outgoings and your debt total decreases each month. You will have started the path to being debt free.

Debt Problems

Does your debt problem stop you sleeping at night? Are you cutting back on essentials such as food and clothing to pay your debts? Can you only make the minimum payments on your debts by borrowing more? Answer yes to any of these and you have serious debt problems. If you have reached this stage then the most likely outcome is that you will need to use a formal debt solution, such as a debt management plan, Individual Voluntary Arrangement or bankruptcy. However if you do your budget and work out that you can make your monthly payments without starving yourself then there may be a (long) road ahead of you to becoming debt free. I would seriously suggest getting some free debt advice to consider your options, as what many people consider to be the honorable thing to do (struggling to pay off their debts) can actually be very harmful to you and your family in the long-term.

Debt Crisis

Have you started missing payments on your debts? Do you struggle to feed your family or pay other basic bills? Have threatening letters and phone calls started? If so, then you are most definitely in a debt crisis situation. You need to get good free debt advice URGENTLY to plan your escape from this situation. Putting off getting advice is only prolonging the misery and puts off the day when you can be debt free. You are most likely to need a formal debt relief solution, but consult with a qualified advisor before doing anything else.