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Bankruptcy and your home
A guide to what happens to the things that matter to you... I
promised in the last edition of The Business Quarter that I would be looking at how bankruptcy would effect your home, your furniture, your car, your
business, your income and your ‘tools of trade’.
In this edition, I will be looking at how to
protect your home in a bankruptcy. Our fictional couple, Liz and Phil, told
me that they were happily married or were so until Phil got into financial difficulties. Phil explains to me that they own their own home in joint names, it is worth £200,000 and there is a mortgage of £180,000 still outstanding. Liz is not at all over the moon that Phil
has got into difficulties in respect of his sole trading business and it transpires that he owes £350,000 to his creditors – mainly the tax man and the VAT man. She tells me that all of Phil’s earnings are going out trying to settle those creditors but Phil is just robbing Peter to pay Paul (and robbing his family most of the time) even though he is trying to work 24 hours a day. Liz asks me how can she can keep her
lovely house if Phil is made bankrupt. I told Liz how to calculate the sum needed
to safeguard the house from Phil’s business ventures for all time.
The sum needed is identified by calculating the value of Phil’s half interest in the equity in the home.
Value of property Less: Mortgage
Total Equity Half equity of Phil
£200,000 £180,000
£20,000 £10,000
So, to get rid of £350,000 of Phil’s
creditors and save the matrimonial home for all time, it will only cost £10,000. The legal logic behind this amazing situation is that ‘creditors can only have what is available’. Liz can raise the £10,000 either by: • Increasing the mortgage by £10,000 • Taking out a personal loan of £10,000 • Borrowing £10,000 from Phil’s mum or her mum. Purnells instruct solicitors on Liz’s behalf to
file paperwork at the Land Registry to record that Liz now owns 100 per cent 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 raised is firstly used to settle
the costs of the transfer and then the balance is retained to pay over to the Official Receiver if Phil files for his bankruptcy or to pay over to a Supervisor if Phil proposes an Individual Voluntary Arrangement (IVA) to his creditors. Phil’s creditors cannot now try to get a
charging order (mortgage) over the house as it is not his. Consequently, Phil’s creditors are unable to take legal proceedings to repossess the house (obviously the mortgage must continue to be paid). With Purnells help we have got rid of £350,000 of creditors for just £10,000 and the house is now safe for all time. 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 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 the house before being made bankrupt. For free initial confidential advice contact
Suzi Purnell of Purnells on 01633 214712 or e-mail:
suzi@purnells.co.uk. Purnells is based at St Marks House, 3 Gold Tops, Newport, SouthWales NP20 4PG.
THEbusiness QUARTER
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