Can You Claim Bankruptcy and Keep Your House?

If you are in serious debt, one option you have is to file bankruptcy. This should only be an option for you if all other avenues have been explored and should only be adopted if there is no way you can pay your debts.

You can apply for bankruptcy yourself. However, if you owe a company £5,000 or more, they can apply to make you bankrupt too.

Going bankrupt is not the only option available to you and should be a last resort.

Advantages of bankruptcyDisadvantages of bankruptcy
The money you owe can be written offYour credit rating will be affected for 6 years
Any court action relating to your debts will be called offAny businesses, cars and luxury items may have to be sold
You will be able to keep some belongings and have a reasonable amount to live onYou may lose your job as some occupations refuse to employ those made bankrupt
You will not have creditors on your backIf you have a high income you will be asked to make debt repayments for 3 years


Bankruptcy and selling your home

If you own your own home, there is a chance it may need to be sold. This will depend on whether your official receiver or bankruptcy trustee (they are people who oversee your case) deems it an appropriate course of action. They will use the house sale funds to pay your debts.

Avoiding your home being sold

Nobody wants to lose their home, but it is a reality many who become bankrupt must face. However, there are situations when alternative action may be taken.

Children and dependants

If you have anyone under the age of 18, family or dependants living in your home you may be able to live in your house for a year whilst you make alternative living arrangements.

Negative equity

If the market value of your property falls below the outstanding amount of mortgage left on it, you could end up keeping your home. The value of your share would need to be over £1,000 once selling costs have been deducted.

This will be reviewed two years and three months after file for bankruptcy is made. If the situation is still the same it is unlikely the house will ever be sold.

Beneficial interest

You could save your home from being taken from you if somebody can buy your share, also known as your beneficial interest. This is the amount of money you would receive upon the sale of your home once any debts against it had been deducted. For example:

Property value£350,000
Mortgage outstanding£175,000
Loan outstanding£15,000
Price to buy out £160,000


If three years pass

Your bankruptcy representative, be it the official receiver or bankruptcy trustee has three years to decide what to do with your property. Your property will be solely yours and no action can be taken on it after the three-year period if you have not…

  • Applied to the court for a changing order
  • Applied to the court for an order to leave the property
  • Sold your beneficial interest
  • Managed to pay your beneficial interest

Is bankruptcy right for me?

Bankruptcy is not an easy option and you should get financial help or visit your local Citizen’s Advice Bureau if you are struggling with debt. Filing for bankruptcy should only be an option if all other options have been exhausted.

Bankruptcy is an option for people who:

  • Are in no position to pay their debts
  • Are stuck in a situation that won’t improve
  • Don’t have high-value belongings
  • Have little or no equity in their home

There are no eligibility criteria to file for bankruptcy, nor is there any minimum amount of debt. However, if your debt outweighs your salary or the value of the things that you own then it could be considered an option. Always seek financial advice before ever considering filing for bankruptcy. If you need to free up some funds to help with your debt, selling your property may help but always check beforehand if it’s the right thing to do with a legal advisor.

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