Bankruptcy does not normally deal with secured debts directly, meaning mortgage debt is excluded. This means it will not be written off or cleared after bankruptcy.
If you fail to keep up with mortgage payments, then the mortgage lender can evict you from your property. This article explains everything you need to know about going bankrupt with a joint mortgage.
You may also find this article on getting a mortgage after bankruptcy useful to read.
What happens to a joint mortgage if you go bankrupt?
Bankruptcy does not normally deal with secured debts directly, meaning mortgage debt is excluded. This means it will not be written off or cleared after bankruptcy. If you fail to keep up with mortgage payments, then the mortgage lender can evict you from your property. Your lender will be informed about your bankruptcy, but as long as you keep up with the mortgage payments they will have no interest in your bankruptcy.
If you fail to keep up with payments, the mortgage lender will repossess the property and it will be sold. The sale of the property may mean that enough money is made to pay off the mortgage owed or it may result in a debt still being left to pay. This remaining debt is now an unsecured debt.
This means all parties named on the joint mortgage will be liable for the mortgage debt (so if you can’t repay the debt, the other party will have to). This debt will be cleared in bankruptcy.
When it comes to dealing with mortgage debt, Bankruptcy may not always be the best solution. It is worth speaking to a debt advisor before declaring bankruptcy.
This would ensure that you fully understand all of the options available to you and the consequences that they may have. You may also want to talk to a qualified mortgage advisor, rather than a debt advisor to get a complete picture of your situation.
For more information, please take a look at our article on how bankruptcy can affect your spouse.
What happens to my share of the equity in bankruptcy?
If you have beneficial interest in a property, then the Official Receiver (OR) will be interested in the property. The value of this will be the same as your share of the equity.
If you have a joint mortgage on a property, this means the property is jointly owned. Only the bankruptee’s share of the property will be affected.
The OR will not be interested in anyone else’s share of the property. However, the other party/parties may still be affected, as the OR still need to release your share of the equity.
For example, if funds cannot be raised in any other way, the property may have to be sold to achieve this. Joint mortgage holders are powerless to stop this.
If you have beneficial interest in a property with negative equity, you have the option to surrender your property to remove your liability.
However, If you choose not to do this the trustee will revisit the case 2 years and 3 months later to see if the situation with the house has changed.
If there is still no equity in the property you then have the option to either give up the house or, alternatively, to buy back your interest (usually for just over £200), which would leave you liable for any outstanding mortgages.
Getting a joint mortgage after being discharged from bankruptcy
There is no reason why you would legally be unable to get a joint mortgage after being discharged from bankruptcy.
What if you Cannot Afford your Mortgage Payments?
During bankruptcy, you will be able to prioritise living expenses, such as mortgage payments. If you still can not afford your mortgage payments. Then you should consider moving into a cheaper rented property and selling your current property.
In some circumstances, you may not be able to sell your property due to negative equity. In this case, you might want to allow the property to repossessed. If this happens, the other joint mortgage holder may have to go bankrupt to deal with any further debt.
Can I remove my name off a joint mortgage?
It is not possible to remove one person’s name from a mortgage (unless one of the owners is deceased). The partner remaining in the property will need to remortgage in their sole name.
You may be interested in reading this article on how bankruptcy can affect your partner.