We referred a long-standing friend of ours to a Liverpool bankruptcy specialist just recently. He had a business in Liverpool city centre that ran into problems and he was considering closing it down and filing for bankruptcy. Naturally, he was concerned about losing his house and told us that bankruptcy might be a deal-breaker if he needed to sell it. We knew the bankruptcy advisor would be able to fill him on the detail and take a look at an IVA if bankruptcy was going to end up too punitive for him and his family.
HIs situation is that his house is jointly owned with his wife. It is just a small 2 bed town house in Widnes and worth around £120,000 or so. The property has an interest only mortgage on it of £110,000. So, all in, there’s about £10k equity in the property. The personal insolvency specialist went through the figures with him and his wife and explained to them that in bankruptcy the Official receiver would only be concerned about his half share and not his wife’s. So that means in terms of the bankruptcy the Official Receiver (OR) or Trustee would have an interest of £5k if the valuation proved to be correct. I should say at this point that the Official Receiver would want to see a current professional valuation and mortgage statement to show whether the figure are correct. He would also carry out a Land Registry search to check the property is jointly owned as well and to see if there are any other mortgages and charges on the property.
Our friend was still worried at this point because he was still concerned he would have to sell his house or face repossession so that the Official receiver could get his £5k interest in the equity. He was advised that this would not have to be the case at all. It is quite normal for the joint owner to put forward an offer to the OR for his interest. So in other words, if the wife is able to raise £5k or in fact even a bit less, then she could offer it to the OR and keep the property. It is therefore something of a bankruptcy myth that you will lose your house automatically in bankruptcy.
It’s much easier for the OR to agree to a proposal like this than go to the trouble of possession and sale which results in some considerable expenses, including legal and court costs and agent’s fees to sell. Then of course in a distressed sale the property would probably sell for less than the open market value. So all in all it’s easy to see that a deal with the wife is much better all round. My friend was rather pleased to hear about this possibility and even happier to learn that in the first 12 months of bankruptcy the OR can’t even take any action against the property anyway. A bankrupt and his family has that initial 12 months to sort themselves out and formulate an offer to the OR.
Of course, every individual case is different, and you should always seek professional guidance if you are facing personal insolvency.