Bankruptcy Case Study 1 - Can I Save the Matrimonial Home & Keep my House out of the bankruptcy process?
Do I have to lose my house and home if I am made bankrupt?
Background to bankruptcy case study - An unhappy situation
Our fictional couple Ben and Liz (who we shall say live in Plymouth) told me that they were happily married or were so until Ben got into financial difficulties! Ben explains to me that they own their home in joint names, it is worth £200,000 and there is a mortgage of £180,000 still owing.
Liz is not at all over the moon that Ben has got into difficulties in respect of his sole trading business and it transpires that he owes £350,000 to his creditors - mainly HMRC. She tells me that all of Ben's earnings are going out trying to settle those creditors but Ben is just robbing Peter to pay Paul and robbing his family most of all even though he is trying to work 24 hours a day.
Liz asks me "If Ben is made bankrupt can I keep my lovely house?"
I therefore explained to Liz how to calculate the sum needed to safeguard the house from Ben's business ventures.
The sum needed is identified by calculating the value of Ben's half interest in the equity in the home.
|Value of Property||200,000|
|Equity of Ben and Liz||20,000|
|Value of Ben's Half Interest||10,000|
So to deal with £350,000 of Ben's creditors, and save the matrimonial home, it will only cost £10,000. The legal logic behind this amazing situation is that "creditors can only have that which is there", i.e. if the house is sold only £10,000 would be realised. The creditors have not lost anything, in fact they have saved estate agent fees, conveyancing fees and Trustee realisation fees.
Cherie can raise the £10,000 either by:
- Increasing the mortgage by £10,000 or
- Taking out a personal loan of £10,000 or
- Borrowing £10,000 from family and friends.
Purnells instruct solicitors on Liz (and Ben's) behalf to file paperwork at the Land Registry to record that Liz now owns 100% of the equity in her home. The mortgage however is still in joint names and because of that the mortgage company do not need to be consulted as it is the "equitable interest" in the home that has been transferred to Liz.
The £10,000 so raised is paid into a dedicated client account at Purnells (with the account called "Purnells client account - Re: Ben"). That money is used to:
- Settle the costs of the Chartered Surveyors instructed by Purnells who valued the property at £200,000 (in accordance with the definition of "market value" as set out in the Royal Institution of Chartered Surveyors Appraisal & Valuation manual").
- Settle Purnells fees for guiding Liz and Ben through the house saving process.
- The balance is retained to pay over to the Official Receiver if Tony files for his bankruptcy or to pay over to a Supervisor if Ben proposes an Individual Voluntary Arrangement (IVA) to his creditors.
Ben's creditors cannot now try to get a charging order (mortgage) over the house as it is not his. Consequently Ben's creditors are unable to take legal proceedings to repossess the house (obviously the mortgage must continue to be paid.)
With Purnells help you have dealt with £350,000 of creditors for just £10,000 and the house is now safe.
Don't leave things and then find a month or two down the road that one of your creditors has put a charge on your home for £50,000. Remember there is NO CHARGE for a meeting at one of our offices. You do not have to lose your home to a bankruptcy trustee. You may be able to keep the family home in bankruptcy and even protect that house before being made bankrupt.
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