If your house is repossessed and there is a shortfall between what is owed and the price the lender or mortgage company sell it on for, then you will have to repay this debt. This article explains how to cope with shortfall debt after repossession.
Am I liable to pay for a shortfall debt after repossession?
If the result of repossession is that an amount of money is left to pay then the mortgage lender will ask for payment from the people who are documented as liable for the debt. In the case of a joint mortgage, the bill will be to each person for the full amount of the debt remaining as each person is liable for all of the debt. So, if you owe £26,000 to the mortgage company, they will chase each person for the full amount of the debt until all of the debt is paid back.
If you think the debt amount is incorrect and that you are not liable for all, or any of the debt, then you may need to check with a solicitor and check the terms of the mortgage that was agreed. If you do find that you have a debt to pay and it is unmanageable or makes it difficult to meet other commitments, then it would be worth contacting a free debt adviser to understand the options that may be available to you.
Please note, if the mortgage is cleared in full by the onward sale then you have no further liability, but the repossession will affect your credit rating and you may find it harder to get credit in the future.
What happens to shortfall debt if my house was sold?
When the property was sold a record of the sale would have been created with the mortgage lender and the land registry. Solicitors would have been used to undertake the transactions and may also hold records. Contacting the land registry for a record of the sale, there may be a small fee for this, could be the starting point. You could try the original mortgage company or solicitor and asking what happened at the time of the sale.
How to deal with shortfall debt?
There are some methods of dealing with debt where the result is that, at a specific point in time, the person liable for the debt is no longer liable and cannot be asked to pay it. If it was a joint debt then the other person may still be liable for all of the debt and will have to pay anything that is still outstanding. Some of the debt solutions that do this are Bankruptcy, Debt Relief Order, Individual Voluntary Arrangement (IVA), negotiation and so on. If you already have an IVA, you may be able to modify it to include shortfall debt (please speak to the insolvency officer overseeing your IVA).
It would be a good idea to contact a free debt advice charity and an adviser will be able to prepare a financial statement for you and see what is possible and identify any consequences.
Is bankruptcy the right solution for shortfall debt?
If you are jointly liable, this generally means that the debt is recoverable fully from each person. If one person uses bankruptcy to deal with their debt, this only fixes their situation and the entire debt will still be owed. Please remember, Bankruptcy does not deal with the debt itself it deals with a person’s liability for that debt.
Another case to consider is if you have a spouse or partner. If they decide to go bankrupt this should have no effect on you, as long as you do not have any jointly owned assets in common. The only potential effect it could have would be where the Trustee/Official Receiver overseeing their bankruptcy decide that they should pay an ‘Income Payment Order’ out of their disposable income.
I have a trust deed, what will happen to the shortfall debt?
Initially, you should contact the Insolvency Practitioner/Trustee who is responsible for your Protected Trust Deed (PTD) they will be able to advise you on how your changes of circumstances will affect your Trust Deed and what implications it has if the property is repossessed or sold during or after your Trust Deed has ended.
It is important your Trustee needs to be kept informed of any changes in your circumstance so they can assess the impact upon your Protected Trust Deed (PTD) and decide what needs to happen. Your PTD is premised on you continuing to pay your ongoing liabilities so it is possible that your Trustee would decide to release you from your PTD and you would then need to look at other ways of dealing with your debt (the Trustee might assist with this).
Will bankruptcy clear shortfall debt?
If a debt is due then the lender will contact you at some stage to look at possible arrangements to repay any debt that is outstanding, if the shortfall debt was dealt with in the bankruptcy process then there is nothing further to pay. If you contact the lender and ask the question they will be able to provide you with the details and you can check with the Official Receiver if you are unsure about what was included in your bankruptcy and anything that still requires paying.
How long can creditors chase me for shortfall debt?
The mortgage company, or their representatives, are able to chase you for a shortfall in mortgage debt from a repossessed property as long as they first contacted you within 12 years of the sale of the property.
Can I lose my home because of my partner’s shortfall debt?
If your partner has been contributing towards the household expenses of the house in your sole name, they may have created a beneficial interest in it. This can mean that creditors have a right to enforce a debt they have against your property by means of a charging order. Speak to a debt adviser who can look at the detail of your circumstances and advise you further.
Can shortfall debt be a problem outside of the UK?
If you are in a situation where your property is in the UK and you currently live outside of the UK, then lenders will have to sue you in the country you reside in. For example, if you live in Ireland and your property is being rented out in the UK, the lender must go through the court system in the Republic of Ireland to get the debt you owe.
You may also want to read our article on voluntary repossession.