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Bankruptcy is the last resort with regard to settling unpaid debts and because of the implications that come with a bankruptcy order, it should only be used when all other forms of debt management fail. One of the largest drawbacks to bankruptcy is that your assets will controlled by the official receiver and they decide what you keep and what you don't. Unfortunately in most cases you won't be allowed to keep your house.
Following a declaration of bankruptcy, the official receiver or trustee will arrange the sale of your house. The beneficial interest in the property i.e. the amount you would receive from selling the house after the outstanding mortgage had been paid, is taken and used to pay the bankruptcy fees and your creditors. If, however, you have a joint mortgage, then only 50% of the interest is taken and the other 50% goes to your spouse or partner.
Transferring your property into your spouse's name before the bankruptcy takes effect will not automatically protect it from the proceedings. The only way it will be protected is if you can prove that your spouse paid the full value at the time of the sale and that they have paid the mortgage in full since that date. You will also need to account for the money that you got from the sale of the house and explain how you spent it. If you can't provide the needed proof then 50% of the equity in the house is available for the official receiver to claim.
In some cases it is possible to keep your home, or at least remain living in it for the time being. For example, if you have dependent children then the court can grant a year's leeway before the property is sold so that you have time to find alternative accommodation. Although this doesn't mean you get to keep your property, it does mean that you have a bit more time to find a suitable home and as you will have a bankruptcy on your credit file, this can be difficult to do.
Another option is to sell your share of your property to your spouse, partner or another relative. This allows you to release your 50% of the equity in the house without actually selling it on the open market. Obviously the money you receive will be taken by the official receiver, but it means that you can continue to live in your home and minimise the disruption to your life.
Bankruptcy is just one option for settling large debts although there are other solutions that can be considered. Most bankruptcy orders will enforce the sale of your property, if not immediately then certainly within the first year, and it can be very difficult to rent a new property with the bankruptcy in place. There are a few ways in which you can remain living in your home, even though you won't actually own it, and these options should also be considered. Bankruptcy is not the end of the world but it will mean that any valuable assets you have will be sold to pay your creditors, and this unfortunately includes your house.
You can post any questions or concerns you have in our bankruptcy forum