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RichM

Just To Clarify - What Happens If You Can't Pay Your Mortgage?

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Can anyone clarify? It's easy to bankrupt after most debts, credit cards etc etc. Is it different from a mortgage? Can you just declare bankruptcy and walk away? After 3 years on here it's one thing I am not sure of.

Not sure what would be good for the longevity of the current boom. A quick and easy bankruptcy would mean people could re-enter the market (theoretically), but the bank might have drastically reduced the credit available to punters if people get off scott-free.

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Don't creditors have to agree if someone wants to declare themselves bankrupt?

Nope you just have to convince the judge to make the order. On very rare occasions the judge will ask the debtor to go away and think about it or may get the debtor to consult an IP but 99 times out of 100 he will make the order on a debtor's petition.

In answer to Riches question about mortgage debt - yes you can just "walk away" thought the actual debt arising only crystalises upon the sale of the property. The bankruptcy order doesn't interfere with the mortgagees rights in relation to their security over the property. ie failing to pay the mortgage means they can still repo.

Any equity in the property will be an asset in the bankruptcy and whereas before the Trustee could simply sit on a charge for years the enterprise act forces the trustee to deal with it. Either they "use it or lose it".

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Can anyone clarify? It's easy to bankrupt after most debts, credit cards etc etc. Is it different from a mortgage? Can you just declare bankruptcy and walk away? After 3 years on here it's one thing I am not sure of.

Not sure what would be good for the longevity of the current boom. A quick and easy bankruptcy would mean people could re-enter the market (theoretically), but the bank might have drastically reduced the credit available to punters if people get off scott-free.

Rich - the easiest way to think of bankruptcy is that it is a snap shot in time (at the making of the order) which includes all* your assets and liabilities. Obviously the reason you are going bankrupt is that you have far more liabilites than assets though.

Your house vests in the trustee but remains a secured asset which is generally sold to pay the outstanding mortgage and at that point the unsecured element of the debt crystalises. It doesn't matter if that doesn't happen for some time after the making of the order.

* some assets are exempt such as household effects some liabilites do not fall within bankruptcy such as debts to the student loans co.

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OK, so they repo and take what they can. Seems fair enough to me. But they can't chase you any further? Once you're bankrupt and repo-ed, that's it?

If that's all there is to it, think I'll set up my "bankruptcy hotline" and wait for the punters to rock up :lol: If it's that easy, then hundreds of thousands will give it a go.

One day you have have a huge portfolio of flats bought with borrowed money. The next day you don't. "Oh well", you say to yourself :lol: Perhaps I should have had a stab at the BTL game, what's the worse that could have happened. Really cannot see banks being so keen on BTL once a few punters go under. Increasing deposits to 25% of value would probably kill the BTL market dead.

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Bankruptcy's a breeze!

I declared myself bankrupt 18 months ago following a business failure due to the personal guarantees I had given the bank and my landlord. Wrote off around 100k of liabilities.

Fortunately the house is in my wife's name so that was safe - I was discharged after 12 months and am now a company director again with full bank account etc.

My advice to anyone finding themselves in negative equity would be simple - rack up the overdraft, credit cards etc, and then go bust. The Official Receiver's office is so busy they don't even check up most cases.

Incidentally, a friend of mine declared himself bankrupt in the early nineties after the last HPC. Because he was in negative equity and could afford to keep paying the mortgage out of income he got to keep the house! He's still got it and it's now worth nearly a million quid!

The only people to suffer when people go bankrupt are generally banks and landlords. So the more the merrier!

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OK, so they repo and take what they can. Seems fair enough to me. But they can't chase you any further? Once you're bankrupt and repo-ed, that's it?

If that's all there is to it, think I'll set up my "bankruptcy hotline" and wait for the punters to rock up :lol: If it's that easy, then hundreds of thousands will give it a go.

One day you have have a huge portfolio of flats bought with borrowed money. The next day you don't. "Oh well", you say to yourself :lol: Perhaps I should have had a stab at the BTL game, what's the worse that could have happened. Really cannot see banks being so keen on BTL once a few punters go under. Increasing deposits to 25% of value would probably kill the BTL market dead.

Yep that's it. Good eh? :o

If you really know how to play the game you can divest yourself of all your assets well in advance not that I'd advocate that of course. But I've seen it done.

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Bankruptcy's a breeze!

I declared myself bankrupt 18 months ago following a business failure due to the personal guarantees I had given the bank and my landlord. Wrote off around 100k of liabilities.

Fortunately the house is in my wife's name so that was safe - I was discharged after 12 months and am now a company director again with full bank account etc.

My advice to anyone finding themselves in negative equity would be simple - rack up the overdraft, credit cards etc, and then go bust. The Official Receiver's office is so busy they don't even check up most cases.

Incidentally, a friend of mine declared himself bankrupt in the early nineties after the last HPC. Because he was in negative equity and could afford to keep paying the mortgage out of income he got to keep the house! He's still got it and it's now worth nearly a million quid!

The only people to suffer when people go bankrupt are generally banks and landlords. So the more the merrier!

Hmm, surely your creditors would have made you draw up an IVA to pay off a % of the debt you owe them. If you could declare bankruptcy without having to pay a penny back, then surely everyone and his dog would be racking up debt on their cc's by now?

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Bankruptcy's a breeze!

I declared myself bankrupt 18 months ago following a business failure due to the personal guarantees I had given the bank and my landlord. Wrote off around 100k of liabilities.

Fortunately the house is in my wife's name so that was safe - I was discharged after 12 months and am now a company director again with full bank account etc.

My advice to anyone finding themselves in negative equity would be simple - rack up the overdraft, credit cards etc, and then go bust. The Official Receiver's office is so busy they don't even check up most cases.

The only people to suffer when people go bankrupt are generally banks and landlords. So the more the merrier!

What is the name of your company? Please could you let us all know so we don't have the misfortune to ever trade with an imbecile like yourself. With your attitude I hope you default against a gangster.

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I read on MSE a few times that if the sale of the house doesnt accheive what you owe the bank then you still owe the bank the rest of the money bancrupt or not

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Hmm, surely your creditors would have made you draw up an IVA to pay off a % of the debt you owe them. If you could declare bankruptcy without having to pay a penny back, then surely everyone and his dog would be racking up debt on their cc's by now?

You can't be forced into an IVA by your creditors. They can take various debt recovery action and even take a creditors petition to put you into bankruptcy but NOT an IVA.

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I read on MSE a few times that if the sale of the house doesnt accheive what you owe the bank then you still owe the bank the rest of the money bancrupt or not

That's simply not true the debt is "written off" when you are discharged from bankruptcy.

The debt is unenforcable. Most reputable lenders are well aware of this. However one of lifes greatest pleasures is explaining this fact to an inexperienced and incredulous bank manager :lol::lol::lol:

Confusion may arise when you have a joint liability such as a joint mortgage. The debt is joint and several which means that if one of the debtors goes bankrupt the bank can chase the non-bankrupt partner for the full amount owed. (unless they go bankrupt as well)

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If you could declare bankruptcy without having to pay a penny back, then surely everyone and his dog would be racking up debt on their cc's by now?

They are :unsure:

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I read on MSE a few times that if the sale of the house doesnt accheive what you owe the bank then you still owe the bank the rest of the money bancrupt or not

That's what I thought but it turns out this is not the case.

The banks are going to get shafted. Nasty.

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Hmm, surely your creditors would have made you draw up an IVA to pay off a % of the debt you owe them. If you could declare bankruptcy without having to pay a penny back, then surely everyone and his dog would be racking up debt on their cc's by now?

I went along the IVA route - they are basically another con by 'insolvency practitioners' who's sole interest in the process is the exhorbitant fee they charge out of the agreed monthly amount paid by you to them for distribution to your creditors.

If you go bankrupt and show a surplus on an income and expenditure form of less than about £100 per month, you will have to pay absolutely nothing and will be automatically discharged after a year.

In a typical IVA you'll be paying £300 - £500 per month for 5 years!

And in case you hadn't noticed, everyone IS racking up debt on their CC's!!!

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I read on MSE a few times that if the sale of the house doesnt accheive what you owe the bank then you still owe the bank the rest of the money bancrupt or not

If I understand correctly the lender or insurance company that backed any Higher Lending Charge (the bit that covers the lender in the event of the borrower defaulting) can chase the borrower for up to 12 years for any outstanding sums.

So if you had a 100% mortgage of £100k which you default on, then the lender sells the property for £90k then they have 12 years in which they can chase you for the 10k loss. They usually reduce this amount over that 12 year period though!

Someone please confirm this as it's only what I've been told!

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If you go bankrupt they take your property if you are an owner occupier. Much better to go bankrupt if you have nothing they can repossess :)

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If I understand correctly the lender or insurance company that backed any Higher Lending Charge (the bit that covers the lender in the event of the borrower defaulting) can chase the borrower for up to 12 years for any outstanding sums.

So if you had a 100% mortgage of £100k which you default on, then the lender sells the property for £90k then they have 12 years in which they can chase you for the 10k loss. They usually reduce this amount over that 12 year period though!

Someone please confirm this as it's only what I've been told!

If you've lost your house through repossession, have no other real assets, and still owe money then you should make yourself bankrupt immediately.

You've absolutely nothing to lose and your outstanding debts will be written off in their entirety, including any money owed to you mortgage lender

You get a clean start again. OK, so no-one will give you a mortgage or a credit card for a few years but that's what got you into this mess in the first place...

The smart move however, is to go bankrupt before you're reposessed. Use your overdraft and credit cards to keep your mortgage up to date first.

Then, if there is no equity in the house, no-one will force a sale! The official receiver is only interested in ASSETS, and a fully mortgaged house is not an asset.

In these circumstances, you should get to keep your home so long as you can keep up with the mortgage payments, but all your other (unsecured) debts will be written off.

Edited by Mr Yogi

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The smart move however, is to go bankrupt before you're reposessed. Use your overdraft and credit cards to keep your mortgage up to date first.

Then, if there is no equity in the house, no-one will force a sale! The official receiver is only interested in ASSETS, and a fully mortgaged house is not an asset.

In these circumstances, you should get to keep your home so long as you can keep up with the mortgage payments, but all your other (unsecured) debts will be written off.

This is what I have have been hearing on other forums. They wont even take your car away if you need it to continue working.

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What is the name of your company? Please could you let us all know so we don't have the misfortune to ever trade with an imbecile like yourself. With your attitude I hope you default against a gangster.

And which province of La La Land are you from?

Are you seriously suggesting that people should not do business with anyone who has been bankrupt or the director of a liquidated company?

If so, you will find it hard to find a pub to drink in, a restaurant to eat in, or someone to fix your roof!

8 out of 10 businesses fail within 2 years of being started. Do the maths. That adds up to a sizeable proportion of the population with at least one failed business venture behind them.

The government relaxed the laws on bankruptcy a few years ago specifically to remove the stigma, to encourage entrepreneurs to take risks and to enable them to get back in the saddle following a business failure. So anyone who starts up again following bankruptcy is simply following government guildlines!

My bankruptcy, like many other business peoples', was caused by the personal guarantees I had to give as a director to my landlord and to the bank. There is a lesson to be learned there.

I lose no sleep about the bank losing money. As for my landlord, he had the best part of half a million pounds out of me over a 15 year period for a deteriotating building on which he spent not a penny on maintenance. I view the £30k I owed him in 'delapidations' as a legitimate rebate against the ridiculous service charge he levied and yet never spent on any 'services'.

All contracts with clients were honoured by myself after liquidation; no client lost out whatsoever. I am proud to have acted in a decent and honourable fashion throughout.

If these are the actions of an imbecile then so be it; better that than a sanctamonious prat who's idea of a risk is probably to buy the Independent instead of the Telegraph one morning.

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Guest portwinestain
If you've lost your house through repossession, have no other real assets, and still owe money then you should make yourself bankrupt immediately.

You've absolutely nothing to lose and your outstanding debts will be written off in their entirety, including any money owed to you mortgage lender

You get a clean start again. OK, so no-one will give you a mortgage or a credit card for a few years but that's what got you into this mess in the first place...

The smart move however, is to go bankrupt before you're reposessed. Use your overdraft and credit cards to keep your mortgage up to date first.

Then, if there is no equity in the house, no-one will force a sale! The official receiver is only interested in ASSETS, and a fully mortgaged house is not an asset.

In these circumstances, you should get to keep your home so long as you can keep up with the mortgage payments, but all your other (unsecured) debts will be written off.

I don't understand how folk get to keep their house if they are in negative equity. If the receivers took the property they would get something for it, wouldn't they?

I'm not disputing what you are saying, it just surprises me.

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Guest happy?
I don't understand how folk get to keep their house if they are in negative equity. If the receivers took the property they would get something for it, wouldn't they?

I'm not disputing what you are saying, it just surprises me.

If the house is in negative equity there's nothing to gain from selling it. The house is owned by the lender (bank) if you can afford to service their debt they have nothing to gain from its sale, equally your creditors would also gain nothing from its sale. Suppose the house has a loan of £500k and it's now worth £400k forcing a sale of it for £400k only adds to your debts by £100k with the bank now added to the list of debtors. The bank's best bet therefore is to avoid the house sale, and hope that you can continue to meet mortgage payments.

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The banks are going to get shafted. Nasty.

Not at all, its all Fractional Reserve Borrowing. Sure their profit projections may be reduced, they may even take a hit and declare a loss for a year or two, but lets not forget they have been making (not projecting to make) record profits over these past ump-teen years. They have sold CDOs back to the market and reduced their exposure-to-risk to near zero.

They will be able to look back over history and say "Wow what a great period we had, our share of wealth in the world just grew and grew and the poor bastards that made us wealthy are left with nothing, to bad they didn't understand the game, BANK ALWAYS WINS!". The banks have made you the debtor pay back interest for the past many years and now they get a legal shot at being able to take all your equity you thought you were accumulating off you as well, so infact they get to keep all the money you ever paid them and keep ownership of the property itself. And so the banks are left with all the money, all the property and the ability to whip the average man back into work (to start the cycle again).

You talk of money as if it is actually something "important", sure its important to you as for your whole life you'd had it drilled into you that it is what makes the world go round. But for a bank money itself really is just paper and there is more where that came from, when they need to burn it they will burn it, when they need to manufacture it they will manufacture it, the real asset to the bank is the legal mechanism of what money makes people do. A means to forcing people into work and to further its own purpose.

So sure the propaganda machine of the banks will make the general public believe they got a "shafted" too; since thats an easy pill for the public to swallow based on their limited understanding of the perception of money. This will allow the bank to futher their own motives whilst in this position when public sentiment is on their side but in reality the banks will have increased their share of wealth in the world; I would not call that a shafting.

Edited by Odin

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Guest portwinestain
If the house is in negative equity there's nothing to gain from selling it. The house is owned by the lender (bank) if you can afford to service their debt they have nothing to gain from its sale, equally your creditors would also gain nothing from its sale. Suppose the house has a loan of £500k and it's now worth £400k forcing a sale of it for £400k only adds to your debts by £100k with the bank now added to the list of debtors. The bank's best bet therefore is to avoid the house sale, and hope that you can continue to meet mortgage payments.

Thanks ,I do understand, it's just thinking it through and coming to the understanding on how 'easy' it all is. I can imagine it's not as stigmatised either now. People can wear their a.s.b.o. and bankrupt badge with pride,ha ha. I'm now niavely thinking that these people who are in position to pay their mortgage will have to work like a dog to keep the payments up.

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