Debt following mortgage possession

Here is some information on what happens after a property has been taken into possession. If you are worried about losing your home see our consumer guide: Help if you are worried about your mortgage.



What happens to your mortgage debt after your home is repossessed?
What will the lender do if there is a shortfall?
How long after the repossession can lenders seek the recovery of the debt?
Does this time limit apply to every case?
What do I do if I have a mortgage related complaint?
What happens to your mortgage debt after your home is repossessed?

After your lender takes your property into possession they have a legal duty to sell the property for the best price that can reasonably be obtained. The property will generally go on the market as soon as possible and your lender will get independent, expert advice on the price it should be sold for and the best method of sale.

If the sale of the property results in a surplus after all the money owed to the lender and any other secured lender has been repaid, then this surplus is returned you. Your lender should notify you of the surplus but if you cannot be contacted, the money will either be held by the court or your lender until you can be contacted.

But if the sale proceeds are not enough to pay off the money you owe to the lender, then there is a "shortfall debt" which you still owe your lender after possession.

Interest will usually continue to be charged on your mortgage loan until the property is sold and any shortfall is repaid. There will also be other costs charged to your mortgage account, including estate agents' costs in selling the property and legal costs.

What will the lender do if there is a shortfall debt?

If there is a shortfall, your lender will contact you as soon as possible after the sale of the property telling you that there is a shortfall debt. They will also let you know that the shortfall debt may be pursued by another company.

If interest is being charged on the shortfall debt, your lender will send you regular, written financial statements which will update you on how much you owe. It is important that you keep your lender informed of your new address after you leave the property so that you receive these statements.

The action that your lender takes will depend on the circumstances. A lender may or may not wish to seek repayment of the shortfall debt, but if they do they must notify you within six years.

How long after the repossession can lenders seek the recovery of the debt?

In England, Wales and Northern Ireland, a lender legally has 12 years to contact you to begin the process of seeking repayment of a shortfall debt; this period is usually 5 years in Scotland.

However, lenders are committed to fair and sympathetic treatment of people who have suffered repossession, and accept that individuals should not face long delays before being contacted to discuss repaying the shortfall. Most lenders will contact you fairly soon after possession to try to agree to a manageable arrangement for repaying all or some of the debt.

Lenders who are members of the Council of Mortgage Lenders voluntarily agreed from 11 February 2000 to begin all recovery action for a shortfall within six years of the sale of a repossessed property. If your property was taken into possession and sold more than six years ago, and you have not been contacted by your lender to recover any outstanding debt, you will not now be asked to pay the shortfall. In Scotland, lenders will begin recovery action within five years.

Does this time limit apply to every case?

The new time limit will not affect you if -

you are already adhering to alternative payment arrangements for the shortfall debt;
or, you have already been contacted by your lender, even if the initial contact was made by the lender after six years from the date of the sale of the property in possession.
The six year limit only refers to beginning recovery action and does not affect a lender's ability to recover the shortfall debt over a longer period. If there is evidence of mortgage fraud, the time limit will not apply.

After a repossessed property is sold, lenders can often find it difficult to contact former borrowers to advise them of any surplus monies or shortfall debt. If this is the case, your lender will use a variety of measures to identify where you are now living. This might include using tracing agents. If your lender or its third party agent are trying to contact you (for example, by letter or telephone) to discuss repayment of the shortfall, but you choose to ignore such contact (despite the fact that the contact is being made at your new address) then your lender will consider that contact has been made within the six year limit. If you are unclear whether contact has been made within the six year period, your lender will be able to tell you.

This is a general summary and the exact way your lender deals with you may depend on the type of mortgage and the date it was entered into.

Iniciado por Tremendo

Siempre te puedes "declarar en bancarrota". Si eres contable puede que luego no encuentres trabajo en ningun lado, pero por lo demas es una posible salida.

Dealing with bankruptcy

Declaring yourself bankrupt is one way of dealing with debts you can no longer manage. But it is not to be taken lightly. Bankruptcy is a serious matter that will affect the way you are dealt with by the financial services industry for many years after you've been discharged.


The history
The bankruptcy laws changed in April 2004, making it easier for people to declare themselves bankrupt by reducing the time it takes to discharge bankruptcy from three years to one year or less.

The change was intended to help business people get back on their feet again. For private individuals, the effects of personal bankruptcy can be far harder to deal with.

Pros and cons

You don't have to become bankrupt just because you're struggling with debts. It should be the last resort. It could mean giving up most of your belongings, salary and any investment in your house to receivers - and the closure of your business.

If you own any property or shares these may have to be sold to pay back the money you owe. This means your family home could be at risk if you go bankrupt. Even if it is jointly owned you may be forced to sell it so your share of the proceeds can be used to repay debts.

However, under new rules, if the trustee appointed by the court has not sold (or sought an order for sale) the bankrupt's home within three years, it no longer counts as part of the estate and may not be claimed.

But it doesn't end there. If you come into any money while the bankruptcy order is still in place, this could also be taken away - if you win the lottery, for example.

You could also find yourself credit blacklisted for up to 15 years, under a draconian new bankruptcy restitution order.

Who it suits

Experts say that for someone with considerable debts, no income and no assets, bankruptcy is probably the best option.

The people it has the most detrimental effect on are those with equity in property, disposable income and those with professional qualifications because they stand to lose the most. For example, solicitors should try to avoid it because they won't be able to practise law afterwards.

The alternatives

You could write to your creditors and make an informal arrangement to pay back your debts over a specific time agreed by them. The only disadvantage is that it won't be legally binding and your creditor might choose to ignore it later on.

If your debts are fairly small (i.e. under £5,000) and you have a regular income the court may agree to set up an administration order whereby you pay your creditors each month but through the court. There are no fees for this - but the court will take a small percentage towards its costs.

If you do have severe debt problems, but want to avoid bankruptcy, an Individual Voluntary Arrangement (IVA) could be an alternative. This works in a similar way to the informal arrangement(above) but is more structured and involves fees.

It is an agreement between you and your creditors that you will repay a percentage of the debt over a set period of time, usually around five years. In many cases the sum paid overall will be less than the original debt.

The advantage of this is you will have more control over your assets, have fewer restrictions and you won't be categorised as bankrupt for credit purposes.

Costs

You will have to pay to arrange IVAs, in some cases upwards of £2,500. But it is likely to be far less than the cost of declaring yourself bankrupt, which includes court and insolvency fees. IVAs may be a better option than declaring bankruptcy, as long as you have a regular income and can meet the payments. However, seek independent professional advice if you are considering this route - some insolvency practitioners will try to encourage you because they can get more money from it.


THE BANKRUPTCY PROCESS

What to do first

If bankruptcy proceedings are taken against you, or you are thinking of making yourself bankrupt, it is vital that you get your own legal or financial advice from a Citizens Advice Bureau, a solicitor, a qualified accountant, an authorised insolvency practitioner, a reputable financial adviser or a debt advice centre. (See the contacts list at the end of this article).

Declare yourself bankrupt

Contact your local county court, or the High Court if you live in London. Staff will tell you where to send your bankruptcy petition.

If one of your creditors presents the petition a bankruptcy order can still be made even if you refuse to acknowledge the proceedings.

If you dispute the creditor's claim, you should try and reach a settlement before the bankruptcy petition is due to be heard. Trying to do so after the bankruptcy order is made will be difficult and expensive.

Publication

Once the bankruptcy order has been made it will be published in The London Gazette. This is an official list of legal notices. It will also be advertised in a local or national newspaper. In addition the official receiver will give written notice of the order to a number of organisations, such as the local authorities, utility suppliers and courts.

Court costs

As from 6 April 2009, the Government have increased the cost to self petition for bankruptcy to £510. This includes a charge of £360 towards the cost of the administration of your bankruptcy by the official receiver. Court fees on top of that are £150, although if you are on income support you may not have to pay this.

Role of the receivers

An official receiver will be appointed to administer your bankruptcy, liquidate what assets you have and pass them on to the necessary creditors. The receiver will be an official of the court and will usually also act as trustee of your bankruptcy estate. After the bankruptcy order any earnings or assets you receive will have to go straight to the receiver to then administer to creditors.

An insolvency practitioner is sometimes appointed as trustee instead of the official receiver. The official receiver or insolvency practitioner is responsible for disposing of your assets and taking payment for the bankruptcy procedure and making payments to your creditors.

Assets that can be kept

As a bankrupt you will no longer control your assets - this will be done through the receiver or trustee. The only possessions you will have a right to keep are any tools, books, vehicles and other items of equipment which you need to use personally in your employment or business. You will also be able to keep your clothing, bedding, furniture and basic household equipment.
our debts

The trustee should deal with your creditors after the bankruptcy order. You must not make any payments directly to creditors. If you receive demands for payment pass them straight to your trustee. The only exceptions to this are if you have a mortgage and any court fines. A mortgage lender may sell your home if payments are not made. However, you are responsible and liable for any debts you incur after the bankruptcy order date.

Day-to-day debts

Domestic utility suppliers, such as gas, electricity, water and phone may not demand payments for bills in your name which are unpaid at the date of the bankruptcy order. However, they may ask you for a deposit towards payment for further supplies or will arrange for the accounts to be transferred into the name of your spouse or partner. You must pay continuing commitments such as rent together with any debts you incur after the bankruptcy.

Restrictions

There are four main things you are forbidden to do as a bankrupt. • You should not try to get credit for more than £250 without disclosing that you are a bankrupt - and this includes trying to get credit jointly with someone else. It also applies to goods or services you might order and then failing to pay on delivery.
• You should not continue with a business in a different name from the one in which you were made bankrupt without telling all those involved the name in which you were made bankrupt.
• You should not form or manage a limited company or act as a director without the court's permission.
• You cannot hold certain public offices, such as MP, JP, school governor, the trustee of a charity or a pension fund.

Bank accounts

You can open a new bank or building society account but you are obliged to tell them you are bankrupt and they will probably impose conditions and limitations on your account.

You cannot have an overdraft without informing the bank that you are bankrupt or write cheques which are likely to be dishonoured. You are obliged to tell your trustee about any money you have in the account that is more than you need for basic living expenses. Your trustee will take any surplus to pay your creditors.

Iniciado por Tremendo

Siempre te puedes "declarar en bancarrota". Si eres contable puede que luego no encuentres trabajo en ningun lado, pero por lo demas es una posible salida.

Iniciado por Pérfida Albión

El mito de la entrega de llaves parece estar bastante extendido, es cierto. Si se cae en un shortfall de pago, los intereses y otros por costes de venta, cargos legales....se continuan debiendo, como bien indica.

Sin embargo hay ventajas con respecto a la ley española. Si después del embargo se vende la casa por una cantidad superior a la deuda contraída en el préstamo, se devuelve la diferencia al prestatario.(surplus)

Los plazos están más claros y hay menor exposición a los abusos contractuales de los prestamistas.

Además de lo que han señalado sobre bancarrota, existe la figura del defensor financiero, financial ombudsman:

Financial Ombudsman Service

Iniciado por Capigorrista

Aquí también puedes presentar un concurso de acreedores.

Sin embargo no dice nada del precio minimo de subasta del bien embargado. Yo entiendo que si al final se subasta por un 10% de la deuda, te quedas con el marron mas gastos mas intereses

Por lo menos en Hispanistan supone una quita del 50% si el banco se la tiene que comer

The minimum bid at the foreclosure sale is based on the home loan balance, plus interest, attorney fees and additional costs. You cannot bid lower than the minimum bid. Because few foreclosed properties have any equity, the initial bid price is often high, with the minimum bid frequently close to market value. Complicating matters, a buyer must present a cashier's check at the sale for the full amount of her winning bid. Fee properties sell through foreclosure sales.

Iniciado por Pérfida Albión

El mito de la entrega de llaves parece estar bastante extendido, es cierto. Si se cae en un shortfall de pago, los intereses y otros por costes de venta, cargos legales....se continuan debiendo, como bien indica.

Sin embargo hay ventajas con respecto a la ley española. Si después del embargo se vende la casa por una cantidad superior a la deuda contraída en el préstamo, se devuelve la diferencia al prestatario.(surplus)