Bankruptcy - What is the Bankrupt's Share of the Equity in the house and home?

At least three pieces of written evidence are needed to compute the bankrupt's share of the equity in his house and home - Important protection steps to consider pre bankruptcy

In a bankruptcy it is only the bankrupt's share of the equity interest in the house and home that is exposed to the bankruptcy process. For instance if you are the husband and you are made bankrupt but your wife is not made bankrupt then the general rule is that only your half interest in the equity has to be realised in the bankruptcy by the bankruptcy trustee. Your wife's half interest in the property is not subject to the bankruptcy process and your bankruptcy trustee, as a general rule, cannot have any interest in her share of the equity in the house.

In order to safeguard your house before any bankruptcy you need to take protective steps.  Pre bankruptcy you can determine the actual figure representing your share of the equity in the house and home. Where a property is jointly owned this half interest in the equity in the home is likely to be  your maximum exposure to the bankruptcy trustee. We say "half interest" as if the property is jointly owned you own half of the equity and if you are made bankrupt it is only your half of the equity that has to be realised by the bankruptcy trustee.

Prior to a bankruptcy order being made then to determine your share in the equity of your home you need to obtain, from a reputable Chartered Surveyor, a market valuation. The valuation of the house must be prepared and recorded to be in line with the Royal Institute of Chartered Surveyors Valuation and Appraisal manual, also known as the "Red book". It is as well if the Chartered Surveyor records in the valuation document a note as to his awareness that you are likely to be made bankrupt on your own petition or on a creditors bankruptcy petition.The valuation must be prepared on a market value basis.

To calculate the equity in the house for bankruptcy purposes you then need to obtain a second piece of documentary evidence. You must obtain a written statement or letter from the mortgage company who holds a charge on the property. If for example,  you should have a first mortgage and a second mortgage on the property, then you must obtain statements from both parties.

The third piece of evidence needed for bankruptcy purposes to calculate your share of the equity in the home concerns any life endowment policies that you might have. Should you have an endowment mortgage, you will also need to obtain written confirmation from the life company of the surrender value in relation to that policy along with confirmation that the policy is assigned to the mortgage company.

Once you have all of those documents to hand, you will be able to determine and place an exact figure on your half share in the equity in the home for bankruptcy purposes.

From the valuation figure you will subtract the amounts owed on mortgage. should you have an endowment policy, you must reduce the related mortgage figure by the amount of the surrender value of the life policy. For details of the calculation that applies in this case, see case study 4 below.

If you have a repayment mortgage, the calculation is simple - The equity of husband and wife together is the valuation figure, minus the amount outstanding on the mortgage. You then divide that sum by 2 to show your half interest in the equity in the home.

In the event of your bankruptcy, it may be possible that your wife could buy out your half interest in the home before the bankruptcy order is made. She could possibly do this by either raising the necessary sum (calculated above) by way of a re-mortgage or by way of an unsecured loan in her name. By buying out your share of the equity pre bankruptcy the house is saved from the bankruptcy process and no creditor can place a charge on your share of the equity before a bankruptcy order is made.Purnells LIcenced Insolvency Practitioners can assist you in safeguarding the matrimonial home even before a bankruptcy order has been made.

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