Can I Keep My Home if I File Bankruptcy?
Estimated reading time 8 minutes
Bankruptcy can be a scary time but also one that allows you the chance to start afresh and put the threat of legal action, as well as the emotional stress it causes, behind you. Of course, it is a situation none of us would prefer to be in, but unfortunately, it happens to a larger number than you may think. Whilst numbers are still historically low, bankruptcies in Q3 of 2023 were 12% higher than the same time a year previous. So, what does this mean for homeowners and renters?
If you are facing bankruptcy or could be considering it as the best solution for your situation, you should weigh up all available options before proceeding. All assets, including your home, can be repossessed and sold to clear debts should you be declared bankrupt. However, the law works in different ways depending on whether you are a homeowner or renting a property.
In this edition of our blog, we look at how you can manage this situation and keep a roof over your head.
Will I lose my home if I go bankrupt?
The simple answer is that yes you could. Although much depends on your circumstances. When you are declared bankrupt, all assets in your name and any finances get put under the control of an official receiver. It is their job to claim back as much of the owed money as they can so that debts can be satisfied as much as possible. This could mean the sale of items such as your car, your home and anything that could garner suitable sums to help pay off the debt.
Material goods come and go, and for the most part, a car, a computer, and furniture can all be replaced relatively easily. A home on the other hand is a little more of an issue. It will be the largest asset you have and, if a homeowner, the one in which most of your money is tied up.
It is the worst-case scenario to lose the home, and if you own it outright, there is every chance the receiver will take your home and sell it to clear the debt. If you have some equity in the home, it could well be that the receiver sells the share you have equity in, meaning you could stay living there but a certain percentage will no longer be owned by you.
Certain circumstances can cause the sale of your home to be forced and some may see a sale avoided.
Can I keep the home I own if I am bankrupt?
There is a well-worn belief that you will lose your home if you are declared bankrupt, but this is not always the case. Below, we have listed the reasons that may allow you to keep your property as a homeowner if you are declared bankrupt, and others that may see it sold.
You may not be able to keep your home when declared bankrupt if:
- If the equity in the property is worth more than £1000.
- If you are the sole owner of the home.
- If the home is jointly owned, the home may be sold but the joint owner will get to keep their equity share.
- If mortgage payments have not been made, the lender could apply for a court order to sell your home.
- If you have your family living with you, the sale can be delayed for up to a year but can still take place.
You may be able to keep your home when declared bankrupt if:
- The equity in the home is less than £1000.
- The equity can be sold to somebody else such as your partner, a family member or a friend.
Can I keep the home I rent if declared bankrupt?
If you are a renter, things can be a little easier to navigate. The official receiver can notify your landlord or letting agent that you are now bankrupt, but they do not have to act upon it.
If you have been continually paying rent and have no arrears, the landlord cannot evict you as you have not broken any of their terms of tenancy. If your rented home is part of a council of social housing scheme, you will also remain able to live there in most cases when declared bankrupt. However, a landlord or letting agent could request you leave if:
- Your tenancy agreement has a clause that terminates the agreement in the event of bankruptcy.
- You have stopped paying rent for any reason.
- They serve notice on you.
What should I do to stop the sale of my home if I am declared bankrupt?
Being declared bankrupt is a worrying time, especially if there is uncertainty over what will happen to your home. There are a few things you can do to either delay or stop the forced sale of your property. Follow the five steps below to assist you.
1. Find out if someone else has a legal right to the home.
Someone who lives with you or helped finance the purchase may have a legal right to the property. If those living with you are a partner or child, they have a legal right to remain in the home. If someone has helped to pay for the home, they may have what is known as a beneficial interest. Each person’s beneficial interest is the amount of money they would receive after everything secured on the property is paid back. If the home is only owned by you, the beneficial interest is all yours, if the home is jointly owned, the beneficial interest is split among all owning parties.
2. Check if there is a chance for a delay or stop to the sale of the home
You may be able to stop the sale if someone has a legal right to the home. If so, a sale can be delayed for up to one year. However, exceptional circumstances can see this period extended, especially if someone you live with is over 70 years of age, has mental health problems, or is disabled and has had the house adapted to cater to their needs.
You may also be able to stop the sale if someone is willing to buy your share of the property. It must be sold at market value and must be approved by the official receiver. If the home is jointly owned though, you will not need the approval of the official receiver but must still inform them. The sale could also be stopped or delayed if you are in low or negative equity.
After 27 months, the official receiver will check if the home is still in low or negative equity, if it is, they may decide not to sell it. However, a charging order may be put in place meaning they may look to sell it in the future.
3. Inform the official receiver of all relevant information
With as much information as possible, the official receiver can work with a lot more and assess whether the home should be sold or whether you should keep it. They must consider your current, and in some cases, future circumstances so speak to a solicitor to find out exactly what should be disclosed.
4. Find out if your SMI benefit may change
Bankruptcy can see a demand made for the repayment of your support for mortgage interest loan if you were granted one. You should contact the DWP to find out more or speak to Citizens Advice for clarity on what may happen.
5. See if you can get your beneficial interest back in the property
Your beneficial interest in the property can become yours again If the official receiver has not done any of the following:
- Sold your beneficial interest to a partner, family member or friend.
- Applied to the court for an order that all occupants must leave the home.
- Applied for a charging order.
- Reached an agreement that you will pay the amount of your beneficial interest.
Bankruptcy is never a nice situation to be in, however, if you can stave it off with a quick house sale, you could be debt-free and ready to start a new chapter. At Gaffsy we specialise in speedy property sales. In fact, we can get them completed in just seven days. We buy any home too, so regardless of the location, the condition, or the type, we can make you a genuine cash offer.
What we should say though is that should you have already been declared bankrupt, you should not look to sell the property for less than it is worth, or give it away to avoid the actions of the official receiver. You could face time in prison, be given additional bankruptcy rules to follow, or even see the property taken away from the people you sold or gifted it to.
Speak to Gaffsy in advance of bankruptcy to help you achieve a fast house sale that could resolve your financial concerns.