Repossession and Bankrupcy

If you have suffered from having your property either repossessed or simply not being able to afford the mortgage payments and handing the keys back in, then the very great chances are that you will be faced with a mortgage shortfall.

We are getting more and more calls each month to our free helpline from people seeking advice and assistance from an experienced advisor on how they deal with a demand from a lender for repayment of a mortgage shortfall. With the rise in property prices over the last decade, the shortfalls are not of manageable proportions. We have clients who have been told that their properties are being sold for £80,000 less than is owed on the mortgage. That shortfall will fall on the mortgage holder. This is not a debt that can be repaid at any time and so the only option is bankruptcy.

For many a bankruptcy is seen as a nuclear option, but actually it needn’t be. If you have no real valuable assets, after a split or a repossession, what have you got to lose? The Official Receiver will take control of your estate, but if you no longer have a property, then the only asset of any value you might have that the OR can take is car. If this is valued at less than £2,000 and you need it for work or to find work, he will not be interested.

At least half the clients that we deal with on a walk through bankruptcy, have a situation where they have had a property repossessed and a shortfall to write off, or they have a mortgage and secured borrowing they cannot service and wish to write off.

In a bankruptcy, you can deal with a mortgage shortfall either as a pre-existing event, where the property has been repossessed or the keys handed in or as a post bankruptcy event. When you made bankrupt the property as it belongs to you vests by law in the OR. So if you want to stay in the property, you need to pay the mortgage and the secured charges. If you do not wish to stay in the property, as you no longer have the property in your name, you need not pay the mortgage. The Official Receiver will ask you to move out and if you refuse can take steps to evict you and gain possession or hand the property back to the mortgage company. They will then take possession to remove you. If they get possession eventually, and sell the property, any shortfall will be in the bankruptcy. In short you can reside in the property for a while without paying the mortgage and write off any shortfall in the bankruptcy.