Negative Equity Included in a Bankruptcy Petition
Advice NI’s Specialist Support Services are available to advisers across the independent advice sector in Northern Ireland. Although they are not available to members of the public, free and independent advice is available from Advice NI’s helpline on 0800 915 4604.
A Debt Adviser contacted Specialist Support for Debt (SSD) seeking support on a complex case regarding negative equity, bankruptcy and potential inheritance.
The client, aged 58, has a home mortgaged with Halifax, which is in approximately £80,000 of negative equity. Client has been unable to work due to illness and is in receipt of Employment Support Allowance (ESA), a small occupational pension and some housing benefit for support with her Rates. She has also applied for Personal Independence Payment (PIP).
For six years, the client has not paid the monthly mortgage payments and arrears of £26,000 have accrued. Independent Advice Network Member Housing Rights is assisting with a stay on possession proceedings as the client is expecting a share in her late mother’s estate of approximately £50,000. However, there is a family dispute over the estate, which is taking time to resolve.
Halifax had requested that she pay £725 per month towards the contractual payments and arrears. However, due to her circumstance she could only agree to repay £400 a month, which she has paid since October 2020 and Halifax has taken no further action.
Client also has unsecured debts of £25,000 showing on her credit report. These were credit card debt, personal loans and an overdraft with no payments made towards these for six years but they had transferred to debt collection agencies. Due to the client’s situation, the debt adviser has advised her to consider putting the property on the market or voluntarily surrendering to the mortgage company and either apply for private rented or Social Housing then petition for bankruptcy when the debt is crystallized.
However, the client has since told adviser she wants to self-petition for bankruptcy. She wishes to include the mortgage arrears in the petition and the unsecured debt, with the hope of keeping her home and come to an arrangement with Halifax.
Specialist Support was asked by the adviser if bankruptcy is an option for the client and what could happen to the potential inheritance of £50,000.
SSD advised that by virtue of Article 270 in Northern Ireland Insolvency Legislation the bankrupt’s estate already includes the potential inheritance and any monies invests in a trustee immediately on the making of the bankruptcy order, to be paid to creditors. Therefore, her inherence will be affected.
Bankruptcy can only capture unsecured debts and mortgage arrears, therefore Halifax secured debt cannot be included in bankruptcy unless the lender produces a statement agreeing for it to be included - experience dictates this rarely happens. The total secured debt is crystallized and the property is no longer her asset before a secured lender becomes unsecured and it then is unsecured.
SSD told the adviser that the client needs to give further thought to other solutions including the potential for an Individual Voluntary Arrangement (IVA) after clarifying when the lump sum becomes available and she could retain a nominal amount for relocation costs or consider if a third party could purchase the property at the true market value and rent back to client.
To contact Specialist Support Debt Adviser Linda Wilson Direct Dial: 028 9064 5919
Email: ssDebt@adviceni.net
Hours of work: Tuesday, Wednesday, Thursday 8am-5.30pm and Friday 8am-4.30pm
The client, aged 58, has a home mortgaged with Halifax, which is in approximately £80,000 of negative equity. Client has been unable to work due to illness and is in receipt of Employment Support Allowance (ESA), a small occupational pension and some housing benefit for support with her Rates. She has also applied for Personal Independence Payment (PIP).
For six years, the client has not paid the monthly mortgage payments and arrears of £26,000 have accrued. Independent Advice Network Member Housing Rights is assisting with a stay on possession proceedings as the client is expecting a share in her late mother’s estate of approximately £50,000. However, there is a family dispute over the estate, which is taking time to resolve.
Halifax had requested that she pay £725 per month towards the contractual payments and arrears. However, due to her circumstance she could only agree to repay £400 a month, which she has paid since October 2020 and Halifax has taken no further action.
Client also has unsecured debts of £25,000 showing on her credit report. These were credit card debt, personal loans and an overdraft with no payments made towards these for six years but they had transferred to debt collection agencies. Due to the client’s situation, the debt adviser has advised her to consider putting the property on the market or voluntarily surrendering to the mortgage company and either apply for private rented or Social Housing then petition for bankruptcy when the debt is crystallized.
However, the client has since told adviser she wants to self-petition for bankruptcy. She wishes to include the mortgage arrears in the petition and the unsecured debt, with the hope of keeping her home and come to an arrangement with Halifax.
Specialist Support was asked by the adviser if bankruptcy is an option for the client and what could happen to the potential inheritance of £50,000.
SSD advised that by virtue of Article 270 in Northern Ireland Insolvency Legislation the bankrupt’s estate already includes the potential inheritance and any monies invests in a trustee immediately on the making of the bankruptcy order, to be paid to creditors. Therefore, her inherence will be affected.
Bankruptcy can only capture unsecured debts and mortgage arrears, therefore Halifax secured debt cannot be included in bankruptcy unless the lender produces a statement agreeing for it to be included - experience dictates this rarely happens. The total secured debt is crystallized and the property is no longer her asset before a secured lender becomes unsecured and it then is unsecured.
SSD told the adviser that the client needs to give further thought to other solutions including the potential for an Individual Voluntary Arrangement (IVA) after clarifying when the lump sum becomes available and she could retain a nominal amount for relocation costs or consider if a third party could purchase the property at the true market value and rent back to client.
To contact Specialist Support Debt Adviser Linda Wilson Direct Dial: 028 9064 5919
Email: ssDebt@adviceni.net
Hours of work: Tuesday, Wednesday, Thursday 8am-5.30pm and Friday 8am-4.30pm