There's No Hiding Place; HOMES AND PROPERTY;More Than 32,000 Homeowners Who Were Once Bankrupt Could Be in for a Shock When They Sell Their Homes

By Barry, Jane | The Evening Standard (London, England), February 28, 2001 | Go to article overview

There's No Hiding Place; HOMES AND PROPERTY;More Than 32,000 Homeowners Who Were Once Bankrupt Could Be in for a Shock When They Sell Their Homes


Barry, Jane, The Evening Standard (London, England)


Byline: JANE BARRY

More than 32,000 homeowners who were once bankrupt could be in for a shock when they sell their homes, says Jane Barry

FOR most of us the rising value of our homes means a pleasing increase in personal wealth. But for one group of homeowners, it revives a nightmare. If you were once bankrupt and even if you rebuilt your life years ago, you can suddenly get a letter from the Official Receiver informing you that, now your home is a valuable asset, it must be sold to pay your debts.

This blow could fall on anyone who went bankrupt during the Nineties recession with negative equity in their home. Obviously if your interest in a property is worthless, it can't be sold to pay your creditors. It's easy to assume that it doesn't count as one of your assets and, as long as you can struggle on paying the mortgage, you'll be free to keep your home. After three years you get an automatic discharge from your bankruptcy and, at this point, people often think they can put the whole humiliating experience behind them and start with a clean slate.

But bankruptcy dogs you. The administration of a bankrupt's estate (your assets at the time of the crash) continues in perpetuity, and the Official Receiver has not forgotten your home.

Property lawyer Edward Nally, of Fieldings Porter, warns: "If you can't turn an asset into cash, the Official Receiver puts it on a reserved list until it realises proper money. It remains available to be put into cash. The trap for the bankrupt is the enhancement of value as the years elapse."

One point at which the Official Receiver swoops is when you try to sell your home. He'll have registered a caution against your property on the Land Registry, and, says Nally, it shows up instantly in a search. "Like a mortgage, you have to clear it before you can pass on the title. If you owe [pound]100,000 and the sale of your property realises [pound]50,000, the trustee in bankruptcy will take the lot."

The Official Receiver also monitors the value of your home.

"Once a year or so he'll go through his register of unrealised assets to see if they can be realised," cautions Jeremy Knight, of the Institute of Chartered Accountants, who acts as a trustee in bankruptcy. "Years after their bankruptcy, when someone has started a new life, it will come to light that there's some equity in the property and they will get a knock on the door."

Insolvency practitioner Peter Howard, of Radfords, reckons there may be as many as 32,000 homeowners currently in this predicament. (A spokeswoman for the Official Receiver disputes this estimate, but admits: "We have no idea what the actual figure is.") If Howard's figure is anywhere near correct, it will take the Official Receiver several years to catch up with everyone, leaving a financial time bomb ticking in many people's lives. So, if you're in this unpleasant position, what can you do?

"People can be like ostriches.

Going bankrupt is very traumatic and they don't want to revisit the problem," sympathises Howard. "I suggest they grasp the nettle now."

Joint ownership helps. In fact, when the bankruptcy occurs, the other owner is usually advised to buy the bankrupt's share. If there is negative equity, this only costs [pound]1 and the Official Receiver will then have no claim on the property. …

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