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PJHughes
Starting Member
United Kingdom
3 Posts |
 Posted - 28 October 2008 : 16:47:33
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Hi,
This question is not related to a specific case more just a general enquiry. Bit of a long one, hopefully prompt a detailed response from any IPs currently posting on here.
Given the current climate on the property market many people considering bankruptcy are in a position of negative equity in relation to thier properies, and horrifically increased mortgage payments as they come out of fix deals and are unable to secure a better deal due to the balance of the mortgage/secured borrowing being higher than the property value.
I understand that in order for an OR/Trustee to obtain a force of sale order in relation to a bankrupts home they must demostrate realisations of >£1000. Does this demonstration have to take the form of realisations from the equity?
Consider the following example;
An individual is a property owner and has £50,000 in unsecured debt
Property value £200,000, mortgage + Secured loan balance £200,000
Secured borrowing repayments £1500pm
estimated IPO/A OR could secure on current income and expenditure is £200pm
Client is made Bankrupt, and for a similar property to his in the area to rent would be £500pm.
Assuming no other assets, if client remains in property and only return in bankruptcy is through an Income Payment Order over maximum term dividend to creditors before fees = (36*200)/50000 = 14%
If force of sale order granted, assume fees for force of sale and reduced price for property increases unsecured debt by £15,000 dividend would be;
(36*1200)/65000 = 66% (due to the saving of £1000 per month from switching from the mortgaged property to rented accomodation)
Massive difference. Would the trustee have the power to impose force of sale in situations like this? If so, what if the unsecured creditors actually ended up with a reduced dividend due to the sale? (i.e. the property was sold at auction for such a reduced price the increase in unsecured debts outweighed the increase in IPO/A payments). What would the repercussions for the OR be?
No one appears to be able to give me a deffinative answer on this so any input greatly appreciated.
I am currently studying for my CPI exams and hopefully my JIEB before 2010, hence the detailed interest!
Thanks
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AndyF
New Member
United Kingdom
95 Posts |
Posted - 28 October 2008 : 17:40:52
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No help to the OP, but would be interested in people's opinions here myself, our situ is that I (not partner) will be going BR in the next month;
Mortgage approx £125k
Sec Loan approx £20k
therefore secured borrowing total £145k
House valuation was £149k on purchase 3 years ago (North East) and has almost certainly dropped, maybe even into negative equity (although have offer to by my interests, if any). But my concern is the same, 3 bed semi with mortgage and loans amounting to £1200 pcm, renting could be between £600 - £800, some saving. My thinking is that with fees, plus somehow having to save deposits, and moving costs that will have to be allowed it would not be worthwhile of the additional payments over 3 years, but I'm optimistic, I suspect I'm wrong. Anyone?
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John
New Member
United Kingdom
73 Posts |
Posted - 28 October 2008 : 19:39:18
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Hi PJH
it is a fact that if the OR decides that the cost of a mortgage is too high he can force a sale for no other reason than to potentially free up DI for the purpose of increasing the IPA payments.
However, in the current market, it would as you rightly suggest likely prove to be fruitless.
Remember the OR is not supposed to be directly responsible for increasing the level of write off in bankruptcy. In a normal market such action would be to the benefit of creditors particularly where property is reasonably easy to sell on the open market.
Right now a forced sale is far less likely to happen.
www.Bankruptcyhelp.org.uk
0800 078 9367 |
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Reviva UK
Advanced Member
United Kingdom
2452 Posts |
Posted - 28 October 2008 : 21:11:44
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Hi
Whilst it may look attractive to the OR to have a substantial IPA which would not only cover the bankruptcy costs but potentially make funds available to the creditors - The OR also needs to be mindful of increasing the debt burden by any shortfall for 1st or 2nd mortgagors.
This in effect would be the reverse of preferential treatment as it would increase the debt in bankruptcy and substantially disadvantage the secured creditor.
Paul Johns
Assisted Bankruptcy Specialists
Reviva UK
For a Free Impartial Review before taking the leap call me @ Reviva UK
www.revivauk.com |
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AndyF
New Member
United Kingdom
95 Posts |
Posted - 28 October 2008 : 22:04:33
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| Thanks for that, even if just opinion, I knew common sense applied somewhere :-) I'd actually done some maths ref renting, and came to same conclusion. Here's hoping for a sensible OR, and hope half helps the OP |
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PJHughes
Starting Member
United Kingdom
3 Posts |
Posted - 29 October 2008 : 11:43:12
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Thank you all for the response.
AndyF I feel for you given the current climate. I think in the example I gave it was a very exagerated, I'n your scenario I think it is so borderline the OR want/see the need to take the risk.
To conclude what has so far been posted then, is it of general opinion that whilst the OR could potentially obtain a force of sale order in the given example, it is very unlikely they would consider doing so due to the potential risk's and disadvantage to the secured lenders?
Do you think an OR would possibly suggest voluntary repossesion to a bankrupt in this situation? As he could potential increase the return through bankruptcy and not directly be responsible for the deficit to the secured creditors.
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Reviva UK
Advanced Member
United Kingdom
2452 Posts |
Posted - 29 October 2008 : 21:23:37
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From my modest experience the OR examiners often suggest things - seems to be more prevelant recently.
Such as use of car, cheaper house, etc etc etc.
Clearly they are searching ( rightly so ) for IPA opportunities. Sometime it seems that frightened or less secure folks may agree to things when they might really need them.
I usually advise my clients not to agree to anything unless we discuss it first. So if the OR suggest an IPA in the phone interview I would ask my client to request written notification of the suggestion and how it is broken down.
last month - over 2 emails and 1 phone call - we reduced a suggested IPA from over 400 pm to only 145. This is a huge difference.
So rule of thumb is never rush , ceate the environment to think and never agree to anything unless you have clearly reviewed the situation.
Paul Johns
Assisted Bankruptcy Specialists
Reviva UK
For a Free Impartial Review before taking the leap call me @ Reviva UK
www.revivauk.com |
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jane.m
Junior Member
230 Posts |
Posted - 30 October 2008 : 16:18:15
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Hi
If your house is already in negative equity can the or still try and do a forced sale as if they do they are adding even more to your debt. Is there a guideline ammount in % terms that is classed as too high ie like in an iva it is 40% and under as acceptable mortgage ammounts.
Many thanks |
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Reviva UK
Advanced Member
United Kingdom
2452 Posts |
Posted - 30 October 2008 : 16:28:51
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Hi
doesn't seem to be any guidelines.
it is clearly templting for the IPA side BUT one then has to look at the additional debt that would follow. Who knows you may see a mortgage lender take the OR to court because they "created" a new debt.
I am sure there are many more againsts than for's
Paul Johns
Assisted Bankruptcy Specialists
Reviva UK
For a Free Impartial Review before taking the leap call me @ Reviva UK
www.revivauk.com |
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jane.m
Junior Member
230 Posts |
Posted - 30 October 2008 : 16:35:07
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Hi Paul
Thanks you for quick reply it sounds like the information that I got from the official insolvency website is not clear cut. They said if your house is in negative equity then the or has no interest in it or the ammount of the mortgage just that you can maintain the payments and they only look at trying to force a sale if it is clear that you can not maintain the mortgage payments. Even in this situation you still have a year ti find other accomodation. You are given an option to buy the interest out for about £213 by a third party.
Thanks |
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Reviva UK
Advanced Member
United Kingdom
2452 Posts |
Posted - 30 October 2008 : 18:27:17
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Hi
you have a coupel of things going on here and it is good not to get them confused.
1. forcing a sale to pursue an IPA where there is negative equity - unlikely for the reasons above.
2. if you clearly cannot afford the mortgage payments ( say one party had left the home )then the OR would probably advise you that it was not sustainable and you would be better off leaving sooner to minimise the increased debt.
3. If you are able to meet the mortgage payments then a third party can buy your beneficial interest in the property from the OR. If the house has equity then it would be at market value plus costs but if it was in negative equity the interest is purchased for £1 plus costs of £211.
Paul Johns
Assisted Bankruptcy Specialists
Reviva UK
For a Free Impartial Review before taking the leap call me @ Reviva UK
www.revivauk.com |
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scaredkez
Junior Member
United Kingdom
194 Posts |
Posted - 31 October 2008 : 00:23:22
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can't give you any factual info, but just to let you know of my situation, when i went BR we were not in this climate now, there was 27k of equity on the house, was a bit of confusion as the or kept telling me there was no equity until 12 months later they realised their mistake however, they can and do let you have 3 years reprieve especially if you have young children they do not throw you on the streets, i am nearly 2yrs in and still in my house, i am probably one of the only ones hoping the housing market falls as it will mean we will fall into negative equity and hopefully have the chance to buy it back, but even if not we have managed to maintain some normality for the children and have been given a chance to save for a deposit on a rental if need be.
kerri |
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Reviva UK
Advanced Member
United Kingdom
2452 Posts |
Posted - 31 October 2008 : 00:46:42
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Hopefully ( wierd as it sounds ! ) I hope the value of your house has dropped as if the equity were under £1000 then you would be in the BI costs of £212.
Let us know how you go
Paul Johns
Assisted Bankruptcy Specialists
Reviva UK
For a Free Impartial Review before taking the leap call me @ Reviva UK
www.revivauk.com |
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scaredkez
Junior Member
United Kingdom
194 Posts |
Posted - 31 October 2008 : 01:05:00
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will let you know of course, i am down to 8k of equity now in this housing market so fingers crossed.
kerri |
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Reviva UK
Advanced Member
United Kingdom
2452 Posts |
Posted - 31 October 2008 : 01:09:50
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at the rate we are going the equity will be gone over the weekend!!!
You should also remember that a valuation by an estate agent isn't relevant as they are probably too optimistic.
If it comes down to the wire get an estate agents valuation first then it might be worthwhile paying for a RCIS valuation which is recognised as a value for mortgage purposes. These always come lower and in your situation paying £300 ish might well save the house.
take care
Paul Johns
Assisted Bankruptcy Specialists
Reviva UK
For a Free Impartial Review before taking the leap call me @ Reviva UK
www.revivauk.com |
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RHB
Senior Member
1159 Posts |
Posted - 31 October 2008 : 08:26:05
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| As i understand it, of the house isn't sold within 3 years it reverts back to you anyway? |
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OR's and force of sale orders
