Bankruptcy and losing your home.

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by: stickystebee
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Word Count: 387
Date: Sun, 24 May 2009 Time: 6:53 PM
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There are circumstances that are becoming all too more common in which there is no alternative other that declaring oneself bankrupt. It is certainly not something to be taken lightly and should only be contemplated when all other ways of dealing with debt, such as making an IVA, have failed.

One of the biggest concerns amongst people who are considering declaring themselves bankrupt or are being forced into becoming bankrupt is what will happen to their home. The sad fact is that if it makes financial sense to the official receiver, the home will be sold. This will happen even if the house is co-owned and the spouse and the children of the person going bankrupt are in residence. In the latter case it might be possible to postpone the sale of the house for a limited period, possibly one year.

If the house is co-owned, for instance if it is owned jointly by husband and wife, then after if has been sold the co-owner will receive half of the equity. This it might be possible for the co-owner to raise enough capital to buy out their partner and so avoid the forced sale of the property. The terminology used in this situation is ‘beneficial interest', which means the actual value of the property attributed to the bankrupt that must be paid to the receiver. It is this beneficial interest that would be purchased by the partner.

If there is very little equity in the home, say as a result of the recent fall in house prices or the house was used to secure loans such as a second mortgage, then the official receiver will assign only a nominal beneficial interest to the property. This is usually £1.00. If the partner is able to keep up payments on the mortgage then the home will be retained, however if mortgage payments are not retained it is almost certain that the mortgage company will repossess the house.

It is not surprising that most people find losing their home to be the most daunting aspect of becoming bankrupt, especially when there is a partner and children involved. It is a brutal social cost that many have to face through no fault of their own.

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There are circumstances that are becoming all too more common in which there is no alternative other that declaring oneself bankrupt. It is certainly not something to be taken lightly and should only be contemplated when all other ways of dealing with debt, such as making an IVA, have failed.