The following is from the Insolvency Service website;
Question: If my house is sold sometime after the bankruptcy order is any shortfall on the mortgage still a debt in my bankruptcy? Answer: A debt which is secured by a mortgage or a charge on a property is still a provable bankruptcy debt. The mortgage loan company is "a secured creditor" which means they have rights over an asset, the house, and can require the asset to be sold to pay their debt. These rights are not affected by the bankruptcy. On the making of a bankruptcy order the mortgage loan company could make a claim in the proceedings but, unless it wished to give up the security, could only claim for any (estimated) shortfall.
If you continue to live in the property it is likely that you will continue to make payments to the mortgage loan company to avoid the property being re-possessed. When the property is eventually sold any shortfall to the mortgage loan company is still a provable debt in the bankruptcy, even if you have been discharged, as you are released from the debt on discharge.
Your bankruptcy does not affect the obligations of any joint owner who has not been made bankrupt to repay the mortgage loan debt or any shortfall, as they are still liable for the whole of the debt.
After the date of the bankruptcy order the mortgage loan creditor may ask you to sign a "deed of acknowledgment" of the outstanding debt. If you have signed such a deed the mortgage loan creditor can take action against you to recover any shortfall following the sale of the property.
You may also find it helpful to read the Insolvency Service publications titled 'What will happen to my home'
1) Mortgage shortfall IS included as a bankruptcy debt PROVIDED the mortgage was taken out BEFORE the date of the BO
2) EVEN IF one pays mortgage payments after the date of the BO any mortgage shortfall accruing at a later date when the property is sold IS still included in the bankruptcy (this surprises me)
3) IT IS IMPOTANT NOT TO SIGN ANY DEED OF ACKNOWLEDGEMENT AS THEN THE MORTGAGE COMPANY MAY BE ABLE TO HOLD ONE LIABLE FOR ANY MORTGAGE SHORTFALL WHEN THE PROPERTY IS EVENTUALLY SOLD. I THINK THIS WOULD USUALLY APPLY TO ANYONE HANDING IN THE KEYS IN A REPOSSESSION SCENARIO.
Mortgage Shortfall - I think this is definitive
Posted - 13 February 2009 : 17:33:33
