What do you need to do if you want your house to be repossessed after you go bankrupt in England, Wales or Northern Ireland? Perhaps the house is unaffordable, has negative equity, or it’s the wrong size for you. For whatever reason, you want to move out, are happy for the mortgage lender to repossess and may want to “hand back the keys” as fast as possible to get it all over with.
The mortgage debt forms part of your bankruptcy
Some of the information you may read on the Internet about mortgages and bankruptcy can be confusing. To understand what happens, think of the mortgage as a being a combination of two different things:
- the mortgage debt, the money you borrowed from the lender; and
- the mortgage security, your house.
The debt is wiped out by bankruptcy. You will have listed the mortgage and any other secured loans on your bankruptcy application. You don’t have to do anything special for these debts – they will be wiped out by your bankruptcy when you are discharged in the same way that unsecured debts such as credit cards are.
But the lender still has your house as security. Even though the “debt” part of the mortgage no longer exists, if you don’t carry on making the agreed debt and interest repayments the lender will at some point repossess your house and sell it. Because of this, if you want to stay in the house you need to carry on with the repayments, but I’m not considering this case in this article, which only looks at the situation where you do NOT want to stay in the house.
How to get the house repossessed
You need to do two things:
- stop paying the mortgage. You may already have stopped paying the mortgage before you went bankrupt as it’s a good way to get the deposit for somewhere to rent and your bankruptcy fees.
- move out
- inform your mortgage lender by letter that you have moved out, give them your new address, and say they should repossess the house. Hand back the keys if this is easy.
That’s all!
You do not have to attend any meetings the mortgage lender invites you to or any court hearings. Handing over the keys is just a symbolic gesture – if your lender doesn’t make it easy for you to do this, don’t worry about it.
You do not have to sign any documents the lender sends you, see below.
The lender will organise the repossession. This may take longer than you think is reasonable but it really doesn’t make a difference for you. Just reply to any contact from the lender that you have gone bankrupt, you have left the property and you do not intend to start repaying the mortgage.
If you later hear the house is on sale for what you think is too low an amount, just shrug, it’s not your problem. If the sale price isn’t enough to repay the mortgage, it doesn’t matter how large the shortfall is, it will all be wiped out by your bankruptcy.
Do not sign a Deed of Acknowledgement
The one thing you have to be careful about is that you must not sign a Deed of Acknowledgement. The Insolvency Service has said this:
“Sometimes, after the date of the bankruptcy order a lender might ask you sign a document in which you agree to be responsible for the debt and any shortfall arising on the sale of the property. This is known as a deed of acknowledgement of a debt. If you sign it, the lender will be able to ask you to pay the debt after you have been discharged from your bankruptcy [my bold]. If you are asked to sign a deed of acknowledgement you may wish to take legal advice before doing so.”
So bankruptcy wipes out your mortgage debt but if you sign this afterwards, you are back owing the money.
If you want the house to be repossessed you should refuse to sign this. If the lender suggests that you can’t hand back the keys unless you do, just refuse. Your local Citizens Advice will confirm that you do not have to sign this.
You might wonder why anyone would ever want to sign this. If you want to keep the house then there may be some circumstances in which it is a good idea, in this case you DO need a lawyer. But I can’t think of any reason why someone who is moving out should ever sign it.
“Help, I’ve already signed one”
If you signed the deed of acknowledgement before you went bankrupt, it doesn’t matter. The mortgage shortfall when the house is sold will be wiped out by your bankruptcy. If you are unsure about this, ask your Official Receiver’s office.
If it was after your bankruptcy, then you need to take advice, especially if you feel you were misled into signing it. Go to your local Citizens Advice Bureau.
A checklist for going bankrupt
What happens when? A timeline for bankruptcy
A Guide to Bankruptcy – what really happens
Nikki says
Hi
I need some advice regarding possession orders, I was declared bankrupt March 2020 and included my mortgage and secured loan, I have since been discharged and a possession order was made for the property December 2021, the house is still yet to be repossessed, the mortgage company are constantly chasing me for payment and have advised they don’t have to repossess the property!? Which is subsequently leading to the secured loan company to also constantly chase me & they are advising as the property still hasn’t been repossessed they are within their legal right to chase me for the money! It’s been 2 years & 3 months since I was declared bankrupt and it’s never ending with the mortgage & secured loan constantly chasing the debt, what can I do?
Sara (Debt Camel) says
Who obtained the possession order?
Have you made any payments to the mortgage or secured loan after your bankruptcy?
Are you still Living in the property?
Nikki says
The mortgage company obtained the possession order, I haven’t made any payments after bankruptcy & I no longer live in the property
Sara (Debt Camel) says
Read https://debtcamel.co.uk/credit-file-after-bankruptcy/ and make a complaint to the mortgage lender and the secured loan lender using the info there.
Then take your complaints to the Ombudsman if the lenders don’t agree. This can take a while, see this complaint by Jen https://debtcamel.co.uk/credit-file-after-bankruptcy/comment-page-3/#comment-488518
Sophie says
Hi,
Hoping you can help me.
Me and my husband separated may 2022 after he was arrested due to domestic violence after I finally found the strength to call them after years of torture living with this man. After he left he wasn’t able to come back due to child protection issues.
When he left I found out the full extent of the debt he had landed us in. (I Wasn’t previously allowed to deal with finances) he hadnt paid any of the household bills for 3 years. I’m in around 60k of debt including mortgage arrears. Last summer I went
To court and pleaded for them to allow me to try and right what he had wronged and they agreed. I am paying £950 a month for mortgage but I haven’t even started to pay back any of the other debts including a 11k secured loan he took out against the mortgage.
So I’m coming to the reality that I maybe need to go bankrupt and start again. He doesn’t pay anything towards the debts and is basically “untraceable” as he doesn’t work a legal job and changes contact details and address quite often. I’m currently working 7 days a week at a GP surgery and hospital and literally cannot do much more to help my financial situation. My question is .. do I stop paying the mortgage and save until it’s repossessed and then go bankrupt when I’ve got a new house to live in or another way? Please help me.
Sara (Debt Camel) says
Sorry quite a few questions:
– have you talked to a debt adviser, which agency?
– who is the mortgage lender?
– who is the secured loan lender? were you unaware of the secured loan or did he make you sign the papers?
– how much is the house worth and how large is the mortgage? what is the mortgage rate?
– how much are the unsecured debts?
– is there anyone in your family that could act as a guarantor for a private tenancy?
Sophie says
No problem! I feel at a dead end.
I took a 30 min free appt with a solicitor who told me to it any circumstances go bankrupt as I’m too young (I’m 31) and wasn’t much help further than that. As my 30 mins was up after I had finished explaining everything,
My mortgage lender is nationwide. They put me on a plan with the court which stated I had to keep up the payments for 6 months. We are 7 months in. Otherwise if I missed a payment it would be straight for repossession.
The secured loan is tandem – previously by someone but they handed it over once payments were being missed.
I was aware of the loan being took out but I didn’t really have much choice in the matter. What he said went and I signed: I’ve brought this up with them- made a complaint and it was rejected.
Unsecured debt is 11k.
35k due to help to buy when and if it sells. 16k in arrears.
Mortgage is still outstanding 130k over 30 years.
I have a very partner who would be able to rent somewhere with his parents being guarantor which has been offered but I don’t want my poor credit or circumstances interfering with his life.
I also have my 11 year old to home aswell so don’t want to make his life harder than possible.
I also tried to gain help from mums with debt, step change and CAB and all not helpful. CAB told me they didn’t actually know what advice to give and I things would need to get worse before they got better. Stepchange and mums with debt only suggested payment plans with my unsecured debts. But they wouldn’t be manageable with my huge mortgage and secured loan. All in all I would be paying back debt for ever more and not having a very good quality of life.
Sara (Debt Camel) says
How much do you think the house is worth? If there is a significant amount of equity (after the mortgage, the secured loan and the help to Buy) then it may be looking at what your other options. Bankruptcy and a clean start can often be the best option… your credit score will not affect your new partner’s just because you live together – you should avoid having any joint accounts with him.
But I do think you should have another go at talking to a debt advice agency that actually listens to your situation (mums in debt just want to flog IVAs) including the economic abuse. I suggest you talk to Payplan or National Debtline. they can talk you through the pros and cons of bankruptcy.