It’s not easy when you’re on the verge of bankruptcy. All manner of things need to be considered – and the status of your home is just one of those things. While bankruptcy is a motion which is meant to allow you to keep as much of your property as you whilst repaying debt, bankruptcy should still be a last resort when you’re struggling with finances.
When you declare yourself bankrupt, or if your creditors apply to make you bankrupt, all your assets can be used up in order to pay off your debts. You will be asked to adhere strictly to certain bankruptcy restrictions, and name and details will be published on a bankruptcy register.
Restrictions will include – being unable to borrow more than £500 without telling the lender of your financial status, you won’t be able to be a director of a company and you won’t be allowed to work as a debt specialist. Restrictions will last 12 months from the date you were made bankrupt.
So during those months, what happens to your home?
If you are a homeowner, when you file for bankruptcy you will be allowed to keep part of your property depending on the amount of equity you have on your home. However, depending on your unencumbered equity, your bankruptcy trustee may sell your property in order to pay your creditors.
You can stop the sale of your home if your beneficial interest is less than £1,000, or if you need to find somewhere for your children or your partner to live. In this case, the sale can be delayed by up to a year.
If you rent a property, you’ll need to check your tenancy agreement regarding bankruptcy and how it alters your situation.
According to a spokesperson from Bankruptcy.org.uk, homeowners are a little better placed to cope with debt. They said: “Surprisingly people who are on the property ladder are less likely to get into serious financial difficulties. This is due to the fact that it tends to be the people in the lowest tax bracket who spend more than they actually earn, and these people naturally find it difficult to get on the property ladder.”
A recent study showed that 77% of those who file for bankruptcy are non-homeowners, despite the assumption that non-homeowners don’t spend as much as homeowners, thanks to not needing to pay a mortgage.
Unsurprisingly, those on a low income are more susceptible to debt and thus perhaps more at risk of becoming bankrupt. There are signs that the job market is improving, but that doesn’t mean that debt isn’t still a problem in the UK.
“In some instances bankruptcy will affect your employment. Accountants, doctors and other professional people are not able to go bankrupt as part of their professional status. Some people working within the financial services profession are not allowed to enter bankruptcy. It’s important to check your employment contract before proceeding with bankruptcy” according to information on Debt Support Charity Advisors.
If you rent your property then also check the lease as some landlords won’t accept bankrupts as tenants.
With the rise of payday loans, repaying money on time is becoming harder and harder for those without a source of income. Payday and short-term loans should be a last resort if you are struggling for money.
If you’re considering filing for bankruptcy, you can find more information here.