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 bankruptcy postbag for march
 Bankruptcy, Repossession and Mortgage Shortfall

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pix1 Posted - 18 March 2008 : 13:32:13
As I understand it if you go bankrupt before, during or after a property repossession any mortgage shortfall debt arising from the sale of the repossessed property would be included in your bankruptcy provided the mortgage company was declared as a secure creditor in the bankruptcy petition statement of affairs. Can anyone advise me if this is correct or not?
15   L A T E S T    R E P L I E S    (Newest First)
Jetstar125 Posted - 03 July 2009 : 13:47:51
Hello and good day.

I've had various properties repossessed and some were subject to an LPA. Unfortunately none of these properties have any equity and some are vacant due to absconding tennants.

I will be self petitioning BR, how does my BR stack up with properties under the order of an LPA from the lender?

I'd be grateful for your comments.

Sunshine_Girl Posted - 31 March 2009 : 21:53:20
Hi all

I hope you don't mind if I join in this one. I've had the same problems as Pix1 in trying to get answers to the question over repossession and shortfall and it certainly is a grey area. The latest response from my examiner, however, was very interesting:

"As you have discovered in your research, this is not a simple yes or no matter. Many factors are involved to complicate what is a very important question for you.

"I would suggest talking to your mortgage company & asking their advice on what will happen in this situation - they deal with these matters on a daily basis & will have good experience. Secondly, you may wish to seek free legal advice from someone such as the CAB or possibly your union.

"My personal understanding of the situation is that providing the repossession happens within the bankruptcy period (that is before your discharge date) & that you have not bought out the OR’s interest in the property, & that you have not signed a deed of acknowledgement (in which you assume responsibility for the debt in bankruptcy), then the shortfall will be part of the bankruptcy & be discharged along with the other debts.

"Please note the above paragraph is not a definitive answer, merely my attempt at giving you a simple answer based on the facts as I recall them, and should not be taken as legal or financial advice."

Does this help?
SG x

JulianDonnelly Posted - 12 September 2008 : 11:54:32

Julian Donnelly
Spokesperson for www.Bankruptcyhelp.org.uk
Don't forget the helpline on 0800 078 9367
alesianlarken Posted - 12 September 2008 : 01:30:57
If mortgage payments are being maintained then it is questionable whether this would form part of the Bankruptcy.If you were made bankrupt then the timing was not a fault of yours and as long as the OR's office is aware that there will be an immanent shortfall this will be dealt with and included in your Bankruptcy.If you hand the keys back or have a property repossessed then technically this would form part of your bankruptcy.

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Helpful Advice Posted - 19 March 2008 : 15:12:02
Hi Pix1,

I can see your trail of thought and agree with what you have said if your wife does go Bankrupt prior to the tax year then you right it will not flag up with her new employer if she starts after April 5.

Your quite right in what your saying with reagrd to your expenditure and I would right to your OR and let them know that the income and expenditure will change with regard to rental and mortgage payments.

Yes I would put your new expenditure on your wife's Bankruptcy petition, but would also let them know that the income position is likely to change.

If you look at your other post, as I have said this will not stop the possibilty of your wife getting an Income Payment Order due to surplus income this will boil down to the income and expenditure and whether there is any disposable.

I hope this helps, and im glad to see that you have managed to turn a difficult situation into a fresh start for your family.

Good Luck and I wish you the best for your new future plans.

View my Blogs at:


Bankruptcy Specialist

England,Jackman & Spacey

WebSite www.ejands.co.uk
pix1 Posted - 19 March 2008 : 14:59:27
Yes, we have alternative accommodation as of April. Staying with my relative. Two quick questions on this:

We will be paying £400 per month to my relative for accommodation and bills. Naturally I must update the OR of the change of address and what we will be paying but, being a relative, what sort of proof will the OR need of such payments as above. Being a relative there would not be a rent book as such or should there be a rent book anyway? And proof of cost of bills? Would we just have to show evidence of the payments going to my relative?

Other question;

It occurred to me that I have put down the mortgage payment on my statement of affairs as a monthly expense even though we have not been paying the mortgage. I think I need to write to the OR to clarify that we have not been paying the mortgage. I am unemployed since before the bankruptcy order and the income and expenditure listed on my statement of affairs is acutally from my wife's earnings.
Can my wife go bankrupt on, say, 10/4/08 and put down the rent/bills payment we will be paying (in fact, we have started paying laready because my daughter is with the relative now)and say we will be moving there shortly or should we wait until we are actually there?

The reason I ask the second question is that I thought it might be more in our interest to start her bankruptcy on her current employer (see my topic 'Nil Tax Code') before the end of this current tax year in order, possibly to avoid a nil tax code and IPA or IPO. She will be moving to a new employer mid April. Of course, she would notify her OR within the requisite 21 days of her new employment details.

I am getting confused now and hope you can understand this!

P.S. We are trying to turn a negative into a positive by moving out of London down to Devon for a better life for our 4 year old daughter.
Helpful Advice Posted - 19 March 2008 : 14:46:21
As per my responce to the other link I would fully agree you have flagged the position to the OR, and as the property still forms part of the bankruptcy estate you are well covered.

If your handing the keys back then your wife can declare her Bankruptcy anytime after this you don't have to wait for the sale hence entering them on the 6.28 as an unsecured creditor with a question mark as well as a secured creditor.

Have you managed to find alternative accomodation as yet?

View my Blogs at:


Bankruptcy Specialist

England,Jackman & Spacey

WebSite www.ejands.co.uk
pix1 Posted - 19 March 2008 : 14:39:29
Thanks Brett for all your efforts in checking into this question.
Just to recap I put down my mortgage as a secured debt in my bankruptcy petition statement of affairs and stated in Section 11.2 of the statement of affairs the following;

"My property...is in mortgage arrears and about to be subject to a repossession action by...the mortgage company. My wife and I expect significant mortgage arrears/shortfall when the property is sold".

I would say that by stating the above (albeit not listing it in unsecured creditors with a question mark) I have, effectively, flagged the potential shortfall issue to the OR.

My wife, co-owner and mortgagee, and I have our repossession hearing taking place on 9/4/08. The repossession order should take place that day. To be on the safe side should my wife wait until the repossession order to declare bankruptcy, say as of 10/4/08 onwards but not actually wait until the property is sold - which could be many months. We are likely actually handing back the keys on 31/3/08 or 1/4/08 (April Fools Day, no less) and, as stated before, we have not made any mortgage payments since before I went bankrupt. The arrears are around 4 months.

JulianDonnelly Posted - 19 March 2008 : 13:16:49
Excellent work Brett, as always.


Julian Donnelly
Spokesperson for www.Bankruptcyhelp.org.uk
Helpful Advice Posted - 19 March 2008 : 12:59:03
Hi Pix1

It appears we were responding at the same time.
We now have a definative answer, however I would still always advice those declaring Bankruptcy to wait until the house has been reposessed if at all possible, however for those that have no choice i.e are made bankrupt or declare themselves bankrupt without knowledge of the position then this is not an issue to worry about so long as the property remains part of the Bankruptcy estate.

All the best,

View my Blogs at:


Bankruptcy Specialist

England,Jackman & Spacey

WebSite www.ejands.co.uk
Helpful Advice Posted - 19 March 2008 : 12:44:44
Hi Pix1,

I understand your worries as there is some elemnet of conflict.

Andy is correct in what he is saying regarding the shortfall, If you hand the keys back or have a property reposessed then technically this would form part of your bankruptcy.

When you declare Bankruptcy your assetts pass over to the OR/Trustee to be dealt with for the benefit of your creditors, if the property is sold or a third party purchases your benefical interest then the proceeds if there are any would pass to the OR to be split between your creditors, therefore if there is a shortfall this should form part of your bankruptcy debts.

So long as the property is still within the jurisdiction of the OR then this is to be the case, However if the trustee decides that there is no equity in the property he may claim that the property is exempt or offer to sell the beneficial interest to a third party or back to the Bankrupt, at this point the property is no longer an assett within the bankruptcy estate, If the property is reposessed at this point any shortfall will not form part of the bankrupcty.

In summary as your property still forms part of the Bankruptcy estate then you are ok.

I have had a client who fell outside this whereby the benefical interest was purchased from the OR for a £1 after this transaction the property was reposessed and the client became liable for the shortfall even though they were still an undischarged Bankrupt, however in this case a settlement was agreed to avoid the need for a second Bankruptcy.

This was a good question, I had to dust off old case files and legal books to give you the definitive answer.

I hope this sets you mind at ease a little.

Kind Regards,


View my Blogs at:


Bankruptcy Specialist

England,Jackman & Spacey

WebSite www.ejands.co.uk
pix1 Posted - 19 March 2008 : 12:34:08
I have contacted the very solicitors of the mortgage company who have proceeded against my wife and I in the county court for repossession and they have advised me that provided the mortgage was down as a secured creditor on the petition any resultant mortgage shortfall following sale would be included in my bankruptcy. They did say about it mattering if we made any mortgage payments since my bankruptcy but we have not made any at all. So, more evidence it sohuld be ok and right from the horses mouth.

Also, I contacted the Insolvency Service and told them the exact same circumstances as above and they said any mortgage shortfall would be included in my bankruptcy. They did also state that the OR still needed to have an interest in the property. That is, the OR's interest normally last a maximum of three years. If no sale took place in that time and any mortgage payments were being made the property would revert back to the bankrupt (or former bankrupt by that time) and any resultant sale mortgage shotrfall would be payable.

Please advise if you need to change the advice being given on this subject.
pix1 Posted - 19 March 2008 : 11:09:46
Reply to last poster:

No, it was my own debtors petition and the Inland revenue are not involved.

Andy Davie, IVA.co.uk Spokesperson and Website Manager (your sister forum) states in a posting;

andydavie Posted - 24 February 2008 : 19:37:08
If your house is repossessed and there is a shortfall and you DO NOT declare bankruptcy then yes you would be liable for the shortfall.
If you declare bankruptcy before your house is repossesed then the equity in the property would pass to your OR,if there was no equity and the house was repossessed then the shortfall would become part of your bankruptcy.
If you declared bankruptcy after your house was repossessed then again any shortfall owing would form part of your bankruptcy.
Jo.a had said;

jo.a Posted - 24 February 2008 : 17:53:03
just want to ask .... in releated to this topic ...if you were made or declared bancrupt and you handed back the keys or house to your mortgage lender ,will you still be liable to pay for the negative equity or mortgage shortfalls like after the lender sold the house to ex .auction or private individual??? ...tnx .. just curious...

See following link for the above;


Also, surely any resultant mortgage shortfall must be included in a bankruptcy as the OR is handling my interest in any asset. If he sells it and there is equity my part of that equity goes towards paying the bankruptcy and creditors and if there is a shortfall on the sale this becomes an unsecured debt in the bankruptcy and is written off.

Naturally I am worried about this. Do you actually know of any real life cases where someone went bankrupt then the property was repossessed during undischarge period and the bankrupt was then chased for a mortgage shortfall unsecured debt by the mortgage company even though the OR was still handling the bankrupts estate?

One other thing from the IBAS website, see link;


LW was chased by Nationwide for £18,000 mortgage shortfall debt that dated back to her student days when she had purchased a property jointly with her Father. Her Father was made bankrupt as a result of business matters and his liability in the shortfall ceased leaving LW solely liable for the mortgage shortfall debt. She returned letters and consistently resisted contact with the lenders agents who offered a reduced settlement. This provoked them to instruct agents to fully investigate her whereabouts and her financial position. Their searches revealed that she solely owned a new property. This led to the commencement of bankruptcy proceedings against her.
Helpful Advice Posted - 19 March 2008 : 09:47:39
Hi Pix1,

I apologies I didn't mean to worry you, so long as the OR's office is working with you onside then you have nothing to worry about.

It sounds like you were made Bankrupt by a creditor and if it was the high court I would take a guess that it was the inland revenue, if you were made bankrupt then the timing was not a fault of yours and as long as the OR's office is aware that there will be an immanent shortfall this will be dealt with and included in your Bankruptcy.

You have done the right thing by putting this on your forms and informing the case handler, if you had not listed this down it could have been an issue.

View my Blogs at:


Bankruptcy Specialist

England,Jackman & Spacey

WebSite www.ejands.co.uk
pix1 Posted - 19 March 2008 : 03:55:40
In my last post that should read "my original examiner".

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