Urgent guidance regarding Bankruptcy please.

[Howard11]

I am owed just over £72K, and find myself in the position of having to be *the bad guy* and enforce bankruptcy on someone. I suspect I need to act very quickly as will be seen.

 

Outside of his primary residence he has a second house that was originally bought as an investment. He has no other assets beyond car and personal possessions. He is not a villain, just a genuinely nice guy in an impossible situation which is why I feel in part like a villain myself!

 

He has been open with me. He is in poor shape and has a plan he is now acting upon, and has *confessed* that at best he can only offer me around £5-6K if and when his house sells, which he is now resigned to doing. I can’t afford to write off all of the rest however, I’m not in too good shape myself ...

 

So then ... I am completely unfamiliar with bankruptcy formalities and would very greatly welcome the comments of someone expert in this field in order to help me clarify two things in particular in order to decide on my best course of action. This isn’t helped by the fact that I suspect I also have to move quickly now as the following makes clear:

 

1

His primary residence is valued at £325K, he doesn’t think he can automatically expect to get that in the present market and will be asking for offers over £295K and keeping his fingers crossed. He has remortgaged and added top-up loans a time or two and needs to make £280K to clear all of that. He has also borrowed from family to keep a past Sole Proprietor business afloat which he has recently had to abandon, hence his bad state now. He advises me that if the house sells reasonably close to value, after clearing the mortgage and repaying the family borrowings he would expect to have something in the order of around £5K+ which would come straight to me. After that he doesn’t expect to be able to do anything more.

 

2

His other property, currently vacant and bought ten years or so ago in a good spell, was mortgaged four years ago to start the business that has now collapsed. Today this house is in small negative equity with a value fallen to £340K but mortgaged for £350K. There is therefore a borderline possibility that he could break-even with a good sale and walk away with no real damage. However, he can’t afford to keep the mortgage up and is about to stop paying, so soon his lender will take notice. He’s putting that house on the market too and hoping for a quick sale simply to make the best of a bad situation, hoping to avoid repossession and a forced-sale that will leave him with a shortfall debt still back to his mortgage lender.

 

I have two options therefore: 1) be the good guy, let him try and get the best result he can and accept £5-6K perhaps in due course and write-off £60K+, or 2) be the bad guy.

 

I just can’t afford to settle for such a big loss however, I have commitments and more just like everyone else, so have to look at other steps.

 

So firstly, I feel I need to participate in the sharing-out of any profit that might hopefully come from the sale of his primary residence, not just be paid an amount once he’s settled up with Mum/Dad/whoever. This may be very little improvement on-balance, but can’t be ignored really.

 

Secondly, and the most important in deciding if it might be worth taking formal steps at all, I feel I should be able to have an entitlement from the sale of the second property whenever it sells, not just let it sell and repay some/all of the mortgage.

 

However, I’m not sure how this second house would be treated. The lender will have an interest in it as security for the mortgage, so will that take priority anyway and be settled over anything else? If so, then there would not be any money over for me to be repaid anything more anyway and it would be pointless wasting time and effort.

 

So I really have just one or two questions to ask that I am sure are very basic. If someone could guide me I should be very grateful.

 

Firstly, would the second house be treated the way that I describe with a primary settlement back to the lender ahead of anybody else, and therefore provide no real expectation of benefit to me anyway?

 

Secondly, I am drawn toward enforcing bankruptcy not taking him to court. I have no experience of either process but in my simple view I am in the main *only* seeking to participate in the proceeds of the 2nd house sale and receive a fair and proportionate slice of that cake rather than having a Bank wolf the lot.

 

I also expect that looking for a court ruling/judgement wouldn’t necessarily give me a much better return anyway, would take time and probably some cost to deal with properly, and in any case might be rendered sterile if after the event he either goes bankrupt himself anyway or someone else takes that step for him just the same. Am I missing anything glaringly obvious? I’d be satisfied with a fair apportionment under bankruptcy, would prefer that to a drawn-out situation and all the baggage that I expect goes with it.

 

There may well be more, however I clearly need to clear up my thinking on some absolute basics.

 

Also, if I am to take any formal actions I need to do so pretty well right away, after the weekend I think, in order to be sure of stabilising things before some part or other changes.

 

I am going to be Googling a great deal in the next 36 hours I am sure, though from what I have found this morning there is plenty of valuable street-level advice and guidance for those on the receiving-end of bankruptcy but almost none for someone in my position as a very reluctant bad-guy!

 

Any input at all would be massively welcomed, thanks!

 

H

[tonycee]

Whatever you decide, you must do it correctly or any petition will be dissmissed in court.

 

What i suggest you do, and its only my opinion, is to seek advice from a proffesional insolvency practitioner. And do it now. Any initial advice should be free of charge. They think they will get your business out of it. But you dont have to make a commitment to them.

 

I have posted a link >>>>>HERE

 

Good Luck.

[debtinfo]

sorry to be the bearer of bad news but i dont think that bankruptcy is going to be your saviour here, let me explain why.

 

Lets presume that what this person has told you about his assets liabilities is correct. (people do lie bankrupt or not but since you know him better than us i will leave that to your judgement). His assets are £15K equity from his main residence, a shortfall from a second residence, a car and possibly some income.

 

Now if you do make him bankrupt it will cost you about £2-3K to do so.

 

First of all lets look at the second property, negative equity and empty, The Trustee is unlikely to allow him to catty on paying that mortgage and so it will likely be repossessed and sold at auction, the secured charges get paid first and will likley leave a shortfall in the region of £30K or more which will become part of the bankruptcy,

 

The Car - If it is of fairly low value will likely be exempted from the bankruptcy ans so he will probably keep it.

 

The Main residence - With £15K of equity there is a good chance that the trustee will leave it up to 3 years before dealing with it, even if they deal with it straight away they will probably accept an offer in the region of 10K for the interest from his family or if it has to be sold the judge it will still take probably a year to be sorted and again probably only realise about 10K.

 

So lets call that 10K to the pot in 1 years time. or 20K (in a very very good market in 3 years time)

 

Income - The Trustee will allow him enough to live a reasonable lifestyle and then take the rest for 3 years. Lets say he is earning well (although it does not seem he has been so far) and can pay £300 pm.

 

After 3 years (with the collecting agents fees taken out) that is probably at most £10K (and that is highly dubious as he may not earn enough to pay an IPA (again you may be in a position to see how well he may be earning))

 

So in total we have £10K after 1 year rising to an improbable £30K after 3 years.

 

Now is the order of payments

 

First the direct bankruptcy fees are taken out, about £1500

 

Then if there was a seperate private trustee to deal with the house, his fees are paid (could easily be 5-10K probably more)

 

but lets presume best case scenario there is no seperate private trustee.

 

Next the secretary of state fees are paid, that is complex but for simplicity lets say 20% of all the assets (ie the £10-30K).

 

Next are any preferential creditors, this is mainly employees, he had his own business so are there any employees owed money or redundancy pay

 

Next is the good news, you the petitioning creditors gets his money back, but only the £2-3K you spent on the proceedings, so basically you are back to zero

 

Finally the money you are owed the £72K, plus the probable 30K shortfall, plus the money owed to his family, plus anyother unsecured debts (presumably he has many from the business and personal debts) are all added together, and any remaining money is split between them pro rata.

 

Now add all that up and work out what you think you might get back.

[Howard11]

Tonycee

 

Thank you, a lot of information there.

 

Debtinfo

 

Thank you, I already had the underlying feeling that the offered c£5K might be as good as I might get ...

 

Clearly the second house is the only asset of any worth that could change anything, but only if the mortgage-lender doesn't take priority in an OR forced-sale. I didn't know how this asset would be treated in a bankruptcy before repossession by the mortgage-lender. I didn't know whether the mortgage lender would have the same status as if they had already repossessed the house, and would be first-paid.

 

My thinking was really very simple ... if the mortgage-lender does get first-paid once the house is sold by the OR to repay others then there won't be anything left anyway so there's no point bothering, whereas if the mortgage holder in bankruptcy is regarded by the OR as just one debtor among others including me, then the proceeds of the sale would be split proportionally and there could potentailly be a larger benefit for me than the c£5K I have been offered from the sale of the primary residence.

 

Wishful thinking as it turns out, but thank you for resolving the question, it is appreciated.

 

... the secured charges get paid first and ....

Edited April 28, 2012 by Howard11