Personal bankruptcy but in a £1.4M house
Discussion
I was checking out some of my, lets say 'less simple' old business contacts to see what they were now up to. Most were still selling their snake oil in various guises around the UK.
One was listed in the London Gazette with his wife as personally insolvent/bankrupt at the end of 2010. All of his company names are dissolved or have overdue acounts, but he is still living in the £1.4m house which doesn't seem to be on the market.
Do personal creditors have no call on the house or is there some rouse to hang on to property during bankruptcy?
I cannot understand him going personally bankrupt as he was always canny enough to have numerous limited companies, I thought his exposure to his many and varied business interests was limited with the company liability.
One was listed in the London Gazette with his wife as personally insolvent/bankrupt at the end of 2010. All of his company names are dissolved or have overdue acounts, but he is still living in the £1.4m house which doesn't seem to be on the market.
Do personal creditors have no call on the house or is there some rouse to hang on to property during bankruptcy?
I cannot understand him going personally bankrupt as he was always canny enough to have numerous limited companies, I thought his exposure to his many and varied business interests was limited with the company liability.
This is an area of the law in which I have had some experience as an adviser working for Receivers and Managers of insolvent individuals and companies for many years.
The law in this area is complex and therefore open to interpretation.
In the case of a personal bankruptcy the Bankrupt individual frequently has no equity left in their home. The equity in the property would pass automatically to the insolvent estate, but if there is no equity an odd situation arises.
It is common practice for the Mortgagee in this case to allow the Bankrupt to continue to occupy the house and therefore the house will remain with the Bankrupt. There is no point in the OR or Receiver taking on a loss so the debt stays attached to the house and the Bankrupt continues to occupy the property. With no equity there is no value.
Again generally the Mortgagee will allow occupation of the house providing the mortgage is being paid. Frequently Bankrupts do just that.
After discharge of the Bankrupt (one year unless repeated or very badly regarded) the Receiver will offer the transfer back into the name of the Bankrupt person for the sum of £500 and valuation costs.
Now this gets interesting.
Because the Bankrupt can apply to the lender to reduce the element of the mortgage that exceeds the valuation of the house to nil. If the Mortgagee agree to this which generally they do THE EXCESS OF MORTGAGE ABOVE VALUATION IS WRITTEN OFF. There are NO comebacks.
I have seen cases where Bankrupts have retained houses and had £100,000 written off the debt where property values have fallen to that extent. They take up the ownership at the reduced mortgage figure.
This has become particularly common in recent years because the market has fallen to such an extent.
This means a win win for the Bankrupt.
He/she is able to keep the family home escape all debts AND reduce the mortgage to current market value and carry on as before in the same property.
I find this anachronistic but it is a fact.
Forty years of work in this area has made me realise that many of the Bankrupts are certainly better dealers and probably more knowledgeable than the Receivers. Their ingenuity is exceptional.
In the Maxwell case no one including George Carman had a better understanding of the law than the Maxwell's. It was educational to see the extent to which the accused outperformed the accusers in every way.
Whether this is fair to the creditors and taxpayer who invariable loses out is another question.
But this is the law, after all, not justice.
The law in this area is complex and therefore open to interpretation.
In the case of a personal bankruptcy the Bankrupt individual frequently has no equity left in their home. The equity in the property would pass automatically to the insolvent estate, but if there is no equity an odd situation arises.
It is common practice for the Mortgagee in this case to allow the Bankrupt to continue to occupy the house and therefore the house will remain with the Bankrupt. There is no point in the OR or Receiver taking on a loss so the debt stays attached to the house and the Bankrupt continues to occupy the property. With no equity there is no value.
Again generally the Mortgagee will allow occupation of the house providing the mortgage is being paid. Frequently Bankrupts do just that.
After discharge of the Bankrupt (one year unless repeated or very badly regarded) the Receiver will offer the transfer back into the name of the Bankrupt person for the sum of £500 and valuation costs.
Now this gets interesting.
Because the Bankrupt can apply to the lender to reduce the element of the mortgage that exceeds the valuation of the house to nil. If the Mortgagee agree to this which generally they do THE EXCESS OF MORTGAGE ABOVE VALUATION IS WRITTEN OFF. There are NO comebacks.
I have seen cases where Bankrupts have retained houses and had £100,000 written off the debt where property values have fallen to that extent. They take up the ownership at the reduced mortgage figure.
This has become particularly common in recent years because the market has fallen to such an extent.
This means a win win for the Bankrupt.
He/she is able to keep the family home escape all debts AND reduce the mortgage to current market value and carry on as before in the same property.
I find this anachronistic but it is a fact.
Forty years of work in this area has made me realise that many of the Bankrupts are certainly better dealers and probably more knowledgeable than the Receivers. Their ingenuity is exceptional.
In the Maxwell case no one including George Carman had a better understanding of the law than the Maxwell's. It was educational to see the extent to which the accused outperformed the accusers in every way.
Whether this is fair to the creditors and taxpayer who invariable loses out is another question.
But this is the law, after all, not justice.
Interesting stuff. I will keep an eye for him emerging smiling in a shiny suit in about 3 months then. I do wondr how he manged to get himself bankrupt to the tune of the value of his house and land and how he is earnming a living because I assume he cannot be d irector while bankrupt and 'employment' was never his thing.
F458 said:
Why does the Mortgagee agree to reduce the loan to the value of the house?
Because the Bankruptcy negates the entire debt on the house. The Mortgagee cannot require the Bankrupt to take responsibility for debt that exceeds the value of the house.It is an anachronism, it is the law, it may not be justice, but as many Bankrupts seem to know it is a fact. The knowledge and understanding of their rights demonstrated by Bankrupts is remarkable.
I just wish the creditors and taxpayers were as informed
Cogcog said:
Interesting stuff. I will keep an eye for him emerging smiling in a shiny suit in about 3 months then. I do wondr how he manged to get himself bankrupt to the tune of the value of his house and land and how he is earnming a living because I assume he cannot be d irector while bankrupt and 'employment' was never his thing.
Your acquaintance has an approach to business that I recognise from bitter experience.There are ways to avoid, evade and generally pay no attention to the consequences of Bankruptcy. There is a certain type.
Your contact seems to fit the bill.
I expect he will recover and push on. That is what these types do.
Steffan said:
Because the Bankruptcy negates the entire debt on the house. The Mortgagee cannot require the Bankrupt to take responsibility for debt that exceeds the value of the house.
It is an anachronism, it is the law, it may not be justice, but as many Bankrupts seem to know it is a fact. The knowledge and understanding of their rights demonstrated by Bankrupts is remarkable.
I just wish the creditors and taxpayers were as informed
He has been in his house for some years ( I think I last went there about 6 years ago) and it has farm land I would have thought he could sell off while retaining the house. I did some background checks then when we wanted me to start a business with him and he had numerous small companies, all turning over about £15-30K a year and making little or no profit. I am surprised he allowed himself to risk his personal monies/house unless this bankruptcy is because he was spending forming and running these companies or secured loans against personal assets but if the businesses were failing and no income was coming in... It is an anachronism, it is the law, it may not be justice, but as many Bankrupts seem to know it is a fact. The knowledge and understanding of their rights demonstrated by Bankrupts is remarkable.
I just wish the creditors and taxpayers were as informed
He tried the lot; retail, training, home party cosmetics, BTL, motor retail and publishing.
F458 said:
Steffan - unbelievable!! I had heard of valuing the house at a much lower amount than what it was worth in order to keep the beneficial Interest to a minimum but never heard of what you say. Thanks for sharing it.
This is common practice since the Housing crunch came. It is in my view iniquitous and makes Bankruptcy a real winner. That was NOT the idea of the Bankruptcy Acts. There really is very little downside to feckless financial behaviour.
Steffan said:
F458 said:
Steffan - unbelievable!! I had heard of valuing the house at a much lower amount than what it was worth in order to keep the beneficial Interest to a minimum but never heard of what you say. Thanks for sharing it.
This is common practice since the Housing crunch came. It is in my view iniquitous and makes Bankruptcy a real winner. That was NOT the idea of the Bankruptcy Acts. There really is very little downside to feckless financial behaviour.
TO put it simply, negative equity is written off by the bank. THere are no winners or losers there.
The alternative is for the practitioner/bank to force the sale of the house. IN this scenario the bank would also lose that exact same amount of equity.
If someone is in a wretched enough situation to be bankrupt and can either
a)stay at thier house and retain a £100k debt despite being bankrupt or
b)walk away from it
they would walk away from it every time.
THis third option is in everyones interest. I dont see a reason to get wound up about a broken man still being allowed to stay in his house.
Havign been the victim of literally hundreds of limited company liquidations over hte years, the personal bankruptcy rules seem f

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