What happens if the OA does not sell the family home within 3 years?

[surfinky]

Could somebody please give insight as to what happens, in the following case where:

1) The debtors family home is in negative equity (both in terms of current market value and/or arrears).
2) The debtor remains in the family home on adjudication.
3) Debtor fails to make reasonable mortgage repayments for whatever reason (e.g. unsustainable).
4) The Official Assignee fails to dispose of the family home within the 3 year period post adjudication.

In the above scenario (which may not be uncommon), the debtor has been discharged from bankruptcy, however the family home will now be re-vested by the Official Assignee to the debtor, along with the outstanding mortgage?

 

[Brendan Burgess]

I don't think that the Official Assignee can re-vest the property in the bankrupt's name.

He certainly can't re-vest the outstanding mortgage.

The lender can, at any stage, enforce its security i.e. apply to repossess the house.

Brendan

 

[surfinky]

I see. It does seem however, that the Court can do so, with reference to recent amendments to Section 85 of the Bankruptcy Act, specifically insertions to subsection 3 of the Act. Unless I am reading it wrong?

Just to clarify, my line of questioning here is an attempt to explore possible outcomes regarding a family home, where voluntary sale or repossession has failed to occur post adjudication and with regard to the following extract:

Similarly the length of the bankruptcy period will not be a significant factor for the Bankrupt in whether he can stay in his house, since as stated above, that depends on whether he has the capacity in bankruptcy to pay his mortgage and the 3 main benefits of the reduction will not significantly benefit the Bankrupt to make an unsustainable mortgage sustainable.

 

[Matthew Moore]

I see. It does seem however, that the Court can do so, with reference to recent amendments to Section 85 of the Bankruptcy Act, specifically insertions to subsection 3 of the Act. Unless I am reading it wrong?

Just to clarify, my line of questioning here is an attempt to explore possible outcomes regarding a family home, where voluntary sale or repossession has failed to occur post adjudication and with regard to the following extract:

I think you may be right but it seems that the bankrupt can refuse to accept the return of the house and mortgage.

The below is taken from here: http://www.merrionstreet.ie/en/News...ge_through_both_Houses_of_the_Oireachtas.html

"a bankrupt person will regain their ownership of their home, subject to any mortgage, after 3 years, if steps have not been taken to sell it for the benefit of creditors within that period"​

 

[Brendan Burgess]

From the Explanatory Memorandum

Subsections 10(b) and 10(c) provide that the bankrupt person’s legal
interest in his or her home will re-vest in him 3 years after the date they are
declared bankrupt, if the Official Assignee has neither sold it, nor applied to
Court for an order permitting sale of the house, before that date.
There are exceptions, for example, if the Court orders otherwise or the
bankrupt person agrees otherwise with the Official Assignee. The 3-year
period can be extended by the Court where it considers that just.

I can't find the actual wording in the Act. But this is pretty clear.

If it's in positive equity, the OA will be obliged to sell the house where he might otherwise have given the spouse more time to get the money together to buy out her interest.

Brendan

 

[Jim Stafford]

If it's in positive equity, the OA will be obliged to sell the house where he might otherwise have given the spouse more time to get the money together to buy out her interest.

Brendan, your comment is very valid.

The OA will do his best, within the parameters of the legislation, to keep people in their family home.

Before the amendment was made, the OA could "sit" on the family home for years before deciding to obtain a court order for its sale. (The longest period I heard of was 17 years!) However, the OA now only has 3 years to make up his mind. In previous "extended cases", the fortunes of the debtor might have improved after his discharge and he could raise monies to buy out the equity etc.

On the plus side, the amendment may encourage certain debtors to go bankrupt whilst retaining their family home! How can this happen? Take the following example.

Basic assumptions
A couple with combined take home pay of €4,000 per month.
2 children in primary school.
PPR valued at €300,000.
Mortgage of €350,00 Interest rate @ 4%. Current monthly payments of €2,121.
Other residual debt from buy to lets, credit cards, revenue etc of €200,000
They only need 1 car.
Reasonable living expenses allowed would be €1,825.
Rental value of "suitable" house in same locality is €1,500 per month.

The Solution

The OA will allow the couple to make monthly mortgage payments of €1,500 to the mortgage company. Accordingly, the mortgage company would have to restructure its payments: but only for 3 years, and not 5 years as previously required. After the three years, the mortgage would revert to normal payments.

After 1 year, the couple emerge from bankruptcy, and continue making payments to the OA for a further 2 years to comply with the 3 year Income Payments Order. The monthly IPO would be for €675 (i.e. €4,000 - 1,825 - €1,500)

The couple may be able to obtain a better result under a PIA or DSA.

Jim Stafford

 

[surfinky]

Jim, thank you for illuminating a clear solution given the assumptions outlined (above)!

Now, to take a conservative approach with slightly modified assumptions:

- Bankrupt remains in the PPR for duration of IPO.
- Bankrupt financial position over the duration of the IPO remains stagnant or quite possibly deteriorates.
- After IPO the bank now reverts to normal payment schedule, which remains unsustainable.

1. Now the bankrupt having been discharged and unsecured debts written off (however large or small) is totally back to square one with regard to mortgage payments on their PPR? What happens now?

2. Indeed it would seem better results can be obtained under PIA or DSA. Would I be correct in assuming, in the case of severe negative equity (commonplace) and the principal debt being only that of arrears and/or mortgage against market value of the PPR, that bankruptcy is a "bad" option?

I am concerned that, in light of these new amendments and the foray and marketing directed by certain "interests" at people in very dire circumstances involving their family home (e.g. severe negative equity), are being somewhat misled (on the face of it) with respect to bankruptcy being a viable solution to "remain in their home". Thoughts?

 

[Brendan Burgess]

Hi Jim

Thanks for that explanation and I can see how it works well in some situations.

To clarify Surfinky's original point

In the above scenario (which may not be uncommon), the debtor has been discharged from bankruptcy, however the family home will now be re-vested by the Official Assignee to the debtor, along with the outstanding mortgage?

This is not correct. Bankrupts need to understand that they won't emerge from bankruptcy after 3 years with a home in negative equity.

What about positive equity?
Presumably many bankrupts have positive equity in their home which is usually jointly owned?

If the wife can't buy out the bankrupt husband's bit within three years, the OA will have to sell the house?

If the OA is inefficient and doesn't get around to it, the home vests back in the bankrupt's name and he now has a valuable asset. That is completely unfair on his creditors.

Brendan

 

[surfinky]

This is not correct. Bankrupts need to understand that they won't emerge from bankruptcy after 3 years with a home in negative equity.

Thank you for the clarification Brendan. Could you explain, why not?

I guess I am missing something really simple here. On one hand, the OA has previously stated he will not seek order for sale of a family home, particularly in negative equity cases. On the other, there is insufficient value in the family home to pay the creditors. I'm stumped. It is insane to think, that at the heel end of an arduous bankruptcy procedure, that the bankrupt ends up owing the bank all over again, for a property in severe negative equity. A real sane case for banks being forced to write down to market value of property in situations such as this?

Possible conclusion - bankruptcy appears to be a futile, if not potentially detrimental procedure to undergo, for those who are in severe negative equity on their family home (without necessarily having other substantial debts) and without any prospect for retaining the home unless they service what has been already established as unsustainable debt, which remains to be the case for many folks out there.

 

[Jim Stafford]

A key point to make is that bankruptcy does not "remove" the mortgage from the house: it remains charged on the property.

The bankruptcy ensures that the debtor no longer has a liability to the mortgage company. However, if the debtor wishes to retain the house, he would have to "re-affirm" (after he has been made bankrupt) that he will "take on" the existing mortgage. Whether the bank agrees to reduce the mortgage liability may be a matter for negotiation. Some banks may refuse to negotiate on reducing the liability. Some of the "funds" which have purchased mortgage debt will have no interest in retaining the mortgage, and will seek to sell the house.

The case study above is very simplistic to illustrate a basic point, namely that it is possible, in certain circumstances, to go bankrupt and still retain the family home. In practice, many issues have to be assessed etc

Jim Stafford

 

[Kenny Dalton]

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