A lot more UK consumers are opting for bankruptcy
as the best route to sort out their debts. In many ways this is the quickest way to sort out your debts once and for all. After all, you could be completely debt free in around a year by declaring yourself bankrupt. But, this is also the most radical way of finding a solution for financial problems. You are given no say in which of your assets you want sold here to pay off what you owe and you could well find that you lose your home in the process.
There are many cases where you will lose your home during a bankruptcy proceeding. But, there are also cases where you won’t. It is important to know just how this element of the process may affect you and your family before you go down this route as you will be legally bound by the actions of the Official Receiver once you enter the process in a formal manner.
The Official Receiver
has the legal right to view your home as just another one of your assets during the bankruptcy process. It may well be that he/she recommends that it be sold to use the proceeds to go towards paying off what you owe. It doesn’t matter if you are the sole owner or if you own it jointly with your spouse or partner. They may not do this if you have negative equity in your property but this may also mean that your lender may take separate action if you don’t pay your mortgage.
There is some room for flexibility here. In most cases your home will be sold if it is the only way to provide enough money to pay back your debts. You may, however, be allowed to carry on living in your home (if you have a spouse and/or children sharing it with you) for a period of around a year after you are declared bankrupt. This measure is designed to give you the best chance of sorting out somewhere else to live. You will, however, still need to meet any mortgage commitments you may have on the property to stop your lender from taking action against you.
Once this period of time has ended your home will technically be sold under an Order For Sale process. This will not happen, however, if your interest in the property totals less than £1,000 in which case the sale will technically be worthless. The interest you have in your home is known as a ‘beneficial’ interest. This can also be a way of preventing your home being sold during your bankruptcy. If you can get someone to buy your beneficial interest during the period you are allowed to remain in your home then the Official Receiver can’t sell it later.
Given that losing your home can be a major blow you’d be wise to take independent advice before you take the bankruptcy route and to assess whether you would be likely to lose your home in the process. This does happen but it is not a given that it will. And, even if it does, remember that bankruptcy will give you a clean start and after the 12 months are up you’ll be debt free and able to start again from scratch.