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pix1
Average Member
689 Posts |
 Posted - 18 March 2008 : 13:32:13
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| 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? |
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JulianDonnelly
Junior Member
United Kingdom
325 Posts |
Posted - 18 March 2008 : 13:42:14
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As long as the repossession occurs before your bankruptcy, any shortfall will be a new usecured debt and included in the bankruptcy. As bankruptcy deals with your position at that date, any new unsecured debts accrued after that date will remain valid.
Regards,
Julian
Julian Donnelly
Spokesperson for www.Bankruptcyhelp.org.uk |
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pix1
Average Member
689 Posts |
Posted - 18 March 2008 : 14:36:02
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| Well, I have gone bankrupt already and I queried this with the Official Receiver after my Telephone Interview and he stated that any resulting mortgage shortfall would be included in my bankruptcy because the mortgage company are on the petition statement of affairs as a secured creditor. Either the OR is wrong or Julian Donnelly is wrong. If you are right would it not be ridiculous to have to file a second bankruptcy for something which is already being dealt with by the OR!? |
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Helpful Advice
Average Member
United Kingdom
646 Posts |
Posted - 18 March 2008 : 16:19:30
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Hi Pix1
For a start you have not been talking to the OR in the interview you have only been talking to an examiner, However If the information is on the paperwork as both a secured and unsecured debt with an unknown shortfall then it is included in the Bankruptcy so long as the possession hearing is already set or the keys have been handed back as is the same with car finance.
This is a grey area in the sence that Bankruptcy deals with all Unsecured debts at the time of the Bankruptcy a secured debt over a property is not yet unsecured therefore should not technically be included, however in practice the debt was incurred prior to the bankruptcy as a secured debt therefore can be included.
If mortgage payments are being maintained then it is questionable whether this would form part of the Bankruptcy.
In the advice we give on the site it is better to be safe than sorry therefore we advise that the client make sure that the possession is already set or the keys have already been handed back.
The other problem people face is different OR's offices deal with things differently especially where a grey area is concerned.
It sounds like you have had a very helpful examiner
May I ask what stage your possession was at the date of your Bankruptcy and where you are located?
View my Blogs at:
http://HelpfulAdvice.blogs.bankruptcyhelp.org.uk/
Bankruptcy Specialist
England,Jackman & Spacey
WebSite www.ejands.co.uk
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pix1
Average Member
689 Posts |
Posted - 19 March 2008 : 03:53:57
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To the last poster:
At the time of my bankruptcy order the possession hearing date was not yet set. We have not made any mortgage payments since before the bankruptcy order date. Bear in mind that my wife is a joint mortgagee with me and she is also needing to go bankrupt for potential mortgage shortfall and other debts. Howe can it be that the OR's office examiners can be handling my finances and contacting my mortgage company to say they will be dealing with it and any mortgage shortfall resulting from the sale of the property will not be covered as part of the bankruptcy? It is ridiculous.
After reading your reply and the other man I have urgently contacted the Official receiver's office in Leeds (bankruptcy order is from High Court). A case officer went away and asked an examiner what the situation was and she phoned me back later to say yes, any resultant mortgage shortfall from the sale would be covered in my bankruptcy. There was nothing about whether any debt was secure or unsecure, only that it was on the petition and that the mortgage was taken out prior to the bankruptcy order. My original (who is, after all, doing the job of the official receiver) had previously said the same thing.
If you are right then would I really have to go bankrupt again - even before discharged from this bankruptcy (which includes the mortgage company with the current secured debt)? |
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pix1
Average Member
689 Posts |
Posted - 19 March 2008 : 03:55:40
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| In my last post that should read "my original examiner". |
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Helpful Advice
Average Member
United Kingdom
646 Posts |
Posted - 19 March 2008 : 09:47:39
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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:
http://HelpfulAdvice.blogs.bankruptcyhelp.org.uk/
Bankruptcy Specialist
England,Jackman & Spacey
WebSite www.ejands.co.uk
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pix1
Average Member
689 Posts |
Posted - 19 March 2008 : 11:09:46
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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
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Jo.a
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.
Regards Jo.a had said;
jo.a Posted - 24 February 2008 : 17:53:03
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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;
http://iva.co.uk/forum/post.asp?method=TopicQuote&TOPIC_ID=9608&FORUM_ID=47
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;
http://www.ibas.co.uk/IBAS%20Mortgage%20Shortfall%20Debt%20Resolution.htm
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.
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pix1
Average Member
689 Posts |
Posted - 19 March 2008 : 12:34:08
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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. |
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Helpful Advice
Average Member
United Kingdom
646 Posts |
Posted - 19 March 2008 : 12:44:44
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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,
Brett
View my Blogs at:
http://HelpfulAdvice.blogs.bankruptcyhelp.org.uk/
Bankruptcy Specialist
England,Jackman & Spacey
WebSite www.ejands.co.uk
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Helpful Advice
Average Member
United Kingdom
646 Posts |
Posted - 19 March 2008 : 12:59:03
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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:
http://HelpfulAdvice.blogs.bankruptcyhelp.org.uk/
Bankruptcy Specialist
England,Jackman & Spacey
WebSite www.ejands.co.uk
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JulianDonnelly
Junior Member
United Kingdom
325 Posts |
Posted - 19 March 2008 : 13:16:49
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Excellent work Brett, as always.
Regards.
Julian Donnelly
Spokesperson for www.Bankruptcyhelp.org.uk |
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pix1
Average Member
689 Posts |
Posted - 19 March 2008 : 14:39:29
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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.
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Helpful Advice
Average Member
United Kingdom
646 Posts |
Posted - 19 March 2008 : 14:46:21
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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:
http://HelpfulAdvice.blogs.bankruptcyhelp.org.uk/
Bankruptcy Specialist
England,Jackman & Spacey
WebSite www.ejands.co.uk
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pix1
Average Member
689 Posts |
Posted - 19 March 2008 : 14:59:27
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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.
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Helpful Advice
Average Member
United Kingdom
646 Posts |
Posted - 19 March 2008 : 15:12:02
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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:
http://HelpfulAdvice.blogs.bankruptcyhelp.org.uk/
Bankruptcy Specialist
England,Jackman & Spacey
WebSite www.ejands.co.uk
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Bankruptcy, Repossession and Mortgage Shortfall
