Key Post The family home in bankruptcy

Thanks Silvio

Mortgage has gone into and out of arrears but we've always caught up.

2 kids. 7 and 11.

Business was dissolved up in 2010. There was no liquidation as all but one of the small suppliers (without guarantees) were paid. The other one wrote off the €700 we owed them.

Major supplier (franchisor) got judgement in late 2010. They just got the payment order of less than €100 a month against a c.€70k debt. (includes 5 years interest post judgement)
Lending bank (Bank of Ireland Finance) got judgement in late 2010.
Bank branch for overdraft (BOI) got judgement in early 2011.

Second property was sold out of receivership in late 2014 with a €230k shortfall (Bank of Ireland Mortgages). They're threatening legal action at present.
Home is with - guess who - Bank of Ireland Mortgages, and has €110k - €120k equity.
 
Nobizere,

I'm sorry this is rushed but I will be travelling for a good bit of next 24 hours and will do you a better reply then (some may have to be by PM as it's too personal to my own dealings and I don't want to reveal my hand before I play it)

1. As you are probably aware the family home cannot simply be taken off you by a creditor or indeed by the OA in bankruptcy.
The OA has to apply to the High Court and in general the Court leans very heavily with the family.
Each case is different but I'd say BOI would have a big struggle to get the house off you with two young children and a debt from a failed business at the core of matter s opposed to the mortgage arrears and negative equity.
This obviously only kicks the issue down the road (10 years or more admittedly)

of more relevance perhaps

2. Having kept your mortgage payments up to date over the 4/5 years since judgments awarded may well help you
This is where I may have to PM you but briefly.
Is it fair for someone who has a judgement over you to have an unlimited upside only "option" over your house equity?
You are taking the risk of keeping your mortgage updated.
If you hadn't done so, the house would probably have been repossessed by now.
If someone has a lien on your family home and there is a mortgage they should seek repossession. If they want to keep the lien indefinitely and see if asset appreciates they should have to pay the bloody mortgage.
This is an extremely tricky area but in bankruptcy at least the OA seems to agree.
Chris Lehane has said if a non bankrupt spouse has made the payments on the mortgage alone for a period of time then he/she alone is entitled to the equity build up over that period.
This is only fair.
If say a house in 2011 had a mortgage of 300k and a MV of 300k.
Now the mortgage is 260k and the MV is 425k.
The creditor should not be allowed piggyback this equity rise and claim half of it if all payments have been made by non bankrupt spouse.
The argument bolstered by if the house MV had decreased to 200k would the creditors chip in their 30k of the negative equity?
Of course not.
They cannot have a no risk option on asset appreciation where the the asset is contingent on mortgage being maintained.

As I say, I will try to tease out some more, probably via PM
 
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Hi Matthew

I don't agree with his analysis of the first option

"The lender has three options. The first is to stand outside the bankruptcy and recover any debts, if necessary by repossessing the property.

...
Under the first option the bank believes that staying completely outside the bankruptcy leaves it entitled to full repayment of the €300,000 mortgage.

Under this scenario the bank is playing a long game, receiving some sort of mortgage repayment and waiting for the property to appreciate to a level permitting the sale and the repayment of the €300,000 mortgage in full.

The bank, however, has a big legal problem. From the moment the bankrupt is adjudicated as bankrupt, the bankrupt is no longer legally obliged to repay the loan. The bankrupt does not own the property.

In effect, the loan has now become a non-recourse loan, meaning the bank can only recover the value of the property and cannot recover anything from the bankrupt.

Outside of any possible share-out, the bank cannot recover any of the negative equity of €100,000. The bankrupt may be paying up to stay in the property and avoid a repossession and sale, but legally, the bankrupt cannot repay the mortgage.

What happens when the person is discharged from the one-year bankruptcy or when the reasonable living expenses rule runs out?

If the bankrupt and their spouse are able to get loan finance to buy the property at a market value of €200,000, they may be better off forcing a sale by stopping paying the bank and buying it.

It is cheaper to have a mortgage in some places than to rent. For the banks this could put them in an awkward position.

There may well be billions of euro worth of such negative equity shortfalls on their loan books which have yet to be fully realised."

I doubt if the bank believes that it is entitled to the full €300,000 mortgage. It is more likely that the bank hopes to be repaid the full €300,000.

Of course the bank can recover more than the €200,000. As the article points out, the Official Assignee will allow the bankrupt to pay the rental equivalent in mortgage payments. As rent is usually much higher than the interest on the mortgage, the mortgage payment made by the bankrupt and by the former bankrupt, may well be enough to gradually repay some of the capital.

It's unlikely that the former bankrupt will be able to get a mortgage to buy their former house. It's possible that the spouse may get such a mortgage. But in most cases, they can't get a mortgage and as rent would be much higher, they are far better off paying the ordinary mortgage repayments. Of course, in some few cases, they will be able to get a relative to buy the house or to lend them the money to buy the house.

Don't forget that the bankrupt no longer has any obligation to pay his unsecured creditors, so they may well be in a better position to make the full capital and interest payments on the mortgage.

And at any time, the lender can rely on its security and apply to repossess the home.

"There may well be billions of euro worth of such negative equity shortfalls on their loan books which have yet to be fully realised."

The banks have fully provided for the losses on their home loans. In fact, they have over-provided and are now writing back the losses.
 
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