Secured loans such as mortgages and those which might have been taken out to do improvements to a property, are listed in the bankruptcy application, but do not form part of the bankruptcy as such, as these are assets owned by other parties (usually banks).
The only exception to this is when a property is to be repossessed and sold. Once sold, the mortgage debt becomes unsecured and any shortfall is written off in the bankruptcy. As a matter of interest, you would not be liable for any shortfall regardless of the time it takes to sell the property.
Therefore, you might be declared bankrupt in March but the property only sells in October, but you will still not be liable provided the property forms part of the ‘Bankruptcy Estate’.
If you were to find yourself in this position, avoid signing any acknowledgements of debt from the mortgage lender, as they may pursue you later. Almost unbelievably, mortgage lenders can pursue mortgage debt for up to 12 years regardless of the bankruptcy, if an acknowledgements of debt has been signed.
We’re often asked by those considering bankruptcy whether they should first sell a property before proceeding, so as to have accurate figures. The answer is no, this is unnecessary as the Official Receiver would have written to the lender to advise of your status and to request updated figures in due course. Not many people know this and continue to be battered by creditors while the property sale is being completed.
‘Can I put a secured loan into a bankruptcy’ is just one of hundreds of questions we’ve answered over the years, but feel free to call us on 01425 600129 if you need to know more or need bankruptcy help. Our staff are ex-financial services and have the experience to get you the best result every time.