{"id":11122,"date":"2010-11-24T16:35:40","date_gmt":"2010-11-24T16:35:40","guid":{"rendered":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/?p=11122"},"modified":"2019-08-06T16:50:14","modified_gmt":"2019-08-06T15:50:14","slug":"buy-to-let-and-bankruptcy","status":"publish","type":"post","link":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/buy-to-let-and-bankruptcy\/","title":{"rendered":"Buy to Let and Bankruptcy"},"content":{"rendered":"\n

Many people bought property before and during the boom expecting that\n by increasing equity over a period of years they would get a better \nreturn than they would otherwise. The plan was to buy a property at a \nreasonable price, let it out for a few years, sell it on and pocket the \nprofits. Hence the boom extended to what became known as the \u2018Buy to \nLet\u2019 sector.<\/p>\n\n\n\n\n\n\n\n

The idea was simplicity itself. An individual or a couple with a \nreasonable disposable income purchase a property and let it out to \ntenants. Mortgages of up to 100% were easy to come by and rents were \nbuoyant. In principle and generally in practice the rental income more \nthan covered the monthly mortgage payments. The property increased in \nvalue year on year and in due course the sale of the property would \nyield a nice little profit, even allowing for capital gains tax. For \nmany the temptation was repeated and rather than limit their ambitions \nto one or two properties, they bought multiple properties, sometimes \nhundreds.<\/p>\n\n\n\n

\"House<\/figure>\n\n\n\n

And then the bubble burst. The continuous increase in property values slowed down and eventually began to go the other way as property sales volumes and prices tumbled. The demand for rental properties began to reduce and rental income began to fall. Suddenly those who entered the \u2018Buy to Let\u2019 sector found that they were unable to reverse the process easily. As demand for property fell so did prices. And so did rental incomes. The mortgage payments on some properties began to exceed the rental income. Letting sometimes became impossible.<\/p>\n\n\n\n

The term negative equity re-entered the vocabulary \u2013 in truth, it had never gone away. Because selling properties at a loss was an unattractive option, people held on to their \u2018Buy to Let\u2019 properties for too long. Instead of the hoped for recovery in the housing market, things got worse. As a result many such investors found that they were insolvent. Their disposable income was insufficient to bridge the gap between their (multiple) mortgage payments and their rental income. Mortgage payments fell into arrears and they began to seek solutions for their financial difficulties.<\/p>\n\n\n\n

Having considered all of their options including entering into \nIndividual Voluntary Arrangements (IVAs) and given that selling the \nproperties would lead to shortfalls, many debtors petitioned for their \nown Bankruptcy (BCY) or one of their creditors so petitioned. They found\n that a crucial factor in their BCY would be the approach of the \nOfficial Receiver and\/or of the Trustee in BCY.<\/p>\n\n\n\n

Buy to Let in Bankruptcy<\/strong><\/h3>\n\n\n\n

The bankrupt\u2019s estate vests in the trustee immediately on his \nappointment taking effect or in the case of the official receiver, on \nhis becoming trustee. The trustee can disclaim any onerous property and \nany property in significant negative equity would be regarded as onerous\n property.<\/p>\n\n\n\n

Property with equity of up to \u00a31,000 – deemed \u2018de minimis\u2019<\/em> –\n can usually be bought back from the trustee for a nominal sum. It is \nnot entirely uncommon for the family of a bankrupt to buy back such a \nproperty on payment of \u00a31 plus the official receiver\u2019s costs of \u00a3211.<\/p>\n\n\n\n

If the equity in the property is in the range of \u00a31,000 to \u00a35,000 \nthen the trustee may seek to register a charge on the property rather \nthan trying to realize this equity by having the property sold thus \navoiding the risk that the sales price might not reach market value and \nthat the net equity realized (after discharging the mortgage) might not \ncover the cost of sales.<\/p>\n\n\n\n

If the equity in the property exceeds \u00a35,000, the trustee may seek to\n sell the property and to realize the equity for the benefit of \ncreditors and to discharge the costs of the bankruptcy. The bankruptcy \nlaws deal in great detail with the rights and duties of the trustee and \nthe bankrupt and the rights of other parties such as the bankrupt\u2019s \nfamily and of creditors.<\/p>\n\n\n\n

Where a bankrupt owns one or more \u2018Buy to Let\u2019 properties it appears \nthat there has been a relatively recent change in the attitude of some \ntrustees to the treatment of such properties. Historically where there \nwas little or no equity in such a property, trustees allowed the \nbankrupt\u2019s family to \u2018buy back\u2019 the property and allowed the bankrupt to\n manage the letting of the property and the servicing of the mortgage. \nAny surplus income thus generated would constitute part of the \nbankrupt\u2019s disposable income and be subject to an income payments order.\n Thus the trustee could receive payments from the bankrupt for up to \nthree years.<\/p>\n\n\n\n

More recently, it appears that some trustees seek to seize control of\n such \u2018Buy to Let\u2019 properties and to assume all responsibility for them:\n receive all rental income; pay the mortgage and all associated \ninsurance & maintenance costs; deal with all letting and tenant \nissues and take all the day to day decisions relating to the properties.\n Should the properties go into significant positive equity in the first \nthree years of the bankruptcy, the trustee would also be in a position \nto realize the equity before the term expires in which the property \nre-vests in the bankrupt.<\/p>\n\n\n\n

The motivation for this apparent change in approach by trustees is \nunclear unless they expect to improve the returns for creditors by \ntaking such action. Should you become bankrupt and the trustee is \nintending to seize control of your \u2018Buy to Let\u2019 properties, you should \nseek to obtain legal advice on this matter.<\/p>\n","protected":false},"excerpt":{"rendered":"

Many people bought property before and during the boom expecting that by increasing equity over a period of years they would get a better return than they would otherwise. <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"none","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":"","footnotes":""},"categories":[2],"tags":[],"class_list":["post-11122","post","type-post","status-publish","format-standard","hentry","category-bankruptcy-articles"],"_links":{"self":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/11122","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/comments?post=11122"}],"version-history":[{"count":1,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/11122\/revisions"}],"predecessor-version":[{"id":11145,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/11122\/revisions\/11145"}],"wp:attachment":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/media?parent=11122"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/categories?post=11122"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/tags?post=11122"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}