How to Save your Home while in Bankruptcy in UK

When you are declared bankrupt, the ownership of your home is passed to the Official Receiver or the trustee. The Official Receiver or the trustee in bankruptcy may sell your home in order to pay your debts to your creditors. This however depends whether your home is a freehold or a leasehold one. It also depends whether your home is under your sole ownership or you jointly own it with your spouse or someone else.

In case you have mortgaged your home and you failed to make your payments regularly, your lender may initiate to sell your mortgaged home. You will have to only contact the lender intimating him about your bankruptcy and he may take care of the mortgage payments by selling your home.

Getting extension period for your house sale

If you are living in the home with your family i.e. with your spouse and children, then you can avert the sale of your home till the completion of one year of your bankruptcy. This much time is allowed to you to make an alternative arrangement for your family’s comfortable stay. For this extension period, you will have to contact the Official Receiver or the trustee and need to make a request for the same.

How to stop the Official Receiver or the trustee to sell your home?

The Official Receiver or the trustee has the responsibility to sell your house and distribute the proceeds among your creditors. However, you can stop him from selling your home if your partner, friend or someone else can manage to pay the amount equivalent to your equity in the home. The Official Receiver or the trustee will give you the first priority to arrange someone to pay for your ‘beneficial interest’ in your home.

Your beneficial interest is equivalent to the proportion of the amount that you have in the proceeds of the sale of your home. If you are the single proprietor of the asset, your beneficial interest will be the total value of your home. If you own the property with a joint owner, your beneficial interest is generally half amount of the total value. If you owe any amounts on mortgages or you have some secured loans on the home, the amount raised from the sale of your house will be used to repay these debts.

The effect of bankruptcy on your beneficial interest

Once you are declared bankrupt, your beneficial interest is transferred to the Official Receiver or the trustee in bankruptcy. If you are the sole owner of your home, the legal title of the property is also transferred to the Official Receiver or the trustee, in most of the cases. If you have a joint ownership of your home with someone else, the legal title of the property vests in you and your partner, but still the Official Receiver or the trustee can take any appropriate action in order to sell your property and raise money.
The Official Receiver or the trustee will sell your beneficial interest in the property and the money so realised will be used to pay your creditors. However, if you want to save your beneficial interest in the property, you will have to arrange someone to buy your interest. This could be your spouse, partner, friend or even a relative.

How to protect your beneficial interest in your property

Find out who is dealing with your bankruptcy affair. Whether it’s the Official Receiver or an insolvency practitioner is appointed as the trustee. If an insolvency practitioner has been appointed to handle your bankruptcy affairs, you along with the person of your choice willing to buy your interests should contact the insolvency practitioner. He will give you more information and will guide you how you can protect your beneficial interests. If only the Official Receiver is dealing with your bankruptcy affairs, your spouse, partner, friend or relative needs to contact him to know about the process of buying your interest in the property.

If there is a co-owner of your home, he or she can take benefit of the low-cost conveyancing scheme where he or she can buy your interests buy paying a fair value of the asset. The scheme is run by The Insolvency Service and your beneficial interest is transferred to the co-owner under this scheme. The legal title is also transferred in the name of the co-owner. However, your partner or the co-owner will have to pay for the fees of the licensed conveyancer for making the transaction possible.

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