Bankruptcy Study 4 - Equity in bankrupt's property - Saving the matrimonial home
Propose an Individual Voluntary Arrangement ("IVA")?
The following case study shows what needs to be done to determine the interest of a bankrupt (or soon to be bankrupt) in the equity in his home and what money needs to be paid over to the Official Receiver post bankruptcy in order to stay in the house.
John and Norma are married. Their home, which is owned jointly, is valued at £200,000. The mortgage is £120,000 and that mortgage is supported by an endowment policy with a present surrender value of £50,000.
Norma has only recently told John that she has been shopping at the Chanel boutique on a weekly basis for the last year. Norma owes £160,000 on sixteen different credit cards.
If Norma applies for bankruptcy (or an IVA) how much will have to be raised to enable the entire equitable interest in the matrimonial home to be transferred into John's sole name?
You now know from the previous case studies the sum to be found is based on the value of Norma's half interest in the equity which is calculated as follows:
|Value of Home||200,000|
|Less: Value of Life Policy||50,000|
|Equity of John and Norma||130,000|
|Norma's Half Interest in the Equity||65,000|
The property can be transferred into John's name after £65,000 has been raised to buy out Norma's interest. Norma's entire liability on the £160,000 of credit cards would then be written off - Most likely by way of an IVA (Individual Voluntary Arrangement)
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