Hello and welcome to the final blog post of the year.
Before we all retreat to our festivities, there is a chance for one final topic, which is how to legitimately save your house before you are made bankrupt.
Before we begin, it must be said that this is an extremely delicate area and can often be misconstrued as a way to prevent your creditors getting your assets.
This is not the case.
The solution provided in this blog post allows for an individual, facing financial trouble and ultimately bankruptcy, to secure their family's home whilst also ensuring their creditors receive a fair return.
With that clarified, the first step to saving the home is to obtain a redemption from the secured lender(s) (for all those creditors secured against the home).
These redemption figures will assist in calculating the individual's interest in the home.
At the same time as obtaining the redemption statements, a Chartered Surveyor will have to be instructed to value the home.
A Chartered Surveyor's costs will vary around the country and it is therefore advisable to contact a couple to ensure you get a fair price.
We often get asked whether an Estate Agent will suffice for the purpose of saving the home as their valuations are cheaper.
The answer is no.
We have nothing against Estate Agents, however we approach the situation of valuing the home from a practical point of view.
Chartered Surveyors have a qualification and a Professional Indemnity Policy to claim against should their valuation be incorrect. Estate Agents do not. Therefore we would always rather rely on the valuation of someone whose willing to stake their professionalism on it.
In addition, Official Receivers (The person appointed as the Trustee in Bankruptcy in all cases in the first instance) use Chartered Surveyors to value the properties they are attempting to realise.
If you are facing bankruptcy and your prospective Trustee in Bankruptcy uses a Chartered Surveyor, you would be wise to do the same as they will be reviewing the transaction once they are appointed.
Once the valuation and redemption statements have been received it is a very simple calculation to ascertain your interest in the home.
You take the value of the house and deduct the value of the mortgages to determine the equity. You then split the equity as per the legal ownership of the home.
For example; if a couple owned their home, worth £200,000, with an equal 50:50 split and had one mortgage, of £120,000, which they were both liable for, they would both be entitled to a £40,000 share of that home.
(The calculation will need to be done carefully as an individual may have a charge against their sole share in the house and this will have to be deducted from their share only.)
The share remaining after the deduction of the secured lenders is known as the individual's "equitable interest" in the home.
Once the equitable interest has been calculated, it will need to be purchased. This could be by any one; Partner, Parents, Children, Siblings etc.
They would then own the individual's equitable interest in the home. This will normally then allow the individual and their family to stay in the home.
A Declaration of Trust would then need to be prepared by solicitors and registered at the Land Registry by way of a restriction. This legal document will record the sale of the equitable interest.
The money received from the sale of the equitable interest then has to be preserved. It cannot be depleted in any way and would need to be handed over to the Trustee in Bankruptcy following the making of the Bankruptcy Order or alternatively be used as part of a lump sum IVA to avoid bankruptcy in the first place. However we will deal with this in our next blog in the new year.
I hope you have found this blog useful. Should you wish to discuss saving your home in more detail, please do not hesitate to get in contact. Telephone: 01326 340579, Email: firstname.lastname@example.org