Bankruptcy for couples

[daftpunk]

Hi folks,

I was following this forum for a while, and also listening to radio interviews, including an interesting slot on Today fm Sunday morning.

Can anybody provide an answer to the following;

In Irish bankruptcy, the family home appears to be a focal point and something many commentators have speculated will be kept as long as humanly possible. I've heard reports of "the spouse may be able to buy it for a few thousand euro" etc., especially if in negative equity.

If both spouses, however, like most joint home owners (with mortgages jointly owed for their house), enter bankruptcy, will it not be case that BOTH of them will be made bankrupt?
Or will the OA somehow allow one of them to buy it a reduced price and keep the family in the family home?

For example purposes;
Mortgage outstanding €300,000 and 30 years left
Purchase price €330,000 5 years ago

House value €150,000
Negative equity €150,000

Really confused over this.

Thanks.

 

[Brendan Burgess]

Hi punk

Karl Deeter brought this up today.

Assume only the husband becomes bankrupt in your case.

The wife is jointly and severally liable for the full mortgage. So after the husband is released from the mortgage, the situation is that the wife has a mortgage of €300k on a house worth €150k. If she can meet the repayments on €300k, she should continue to do so and so will keep the house. Presumably he will stay living there.

If his bankruptcy has freed him from business or other debts, he may well be able to contribute towards the mortgage and so the mortgage may well be sustainable.


You must meet two tests to be bankrupt - you must have liabilities which exceed your assets and you must be unable to pay your debts as they become due. So the wife is not automatically bankrupt just because she is in negative equity.

If the house is worth €150k and the mortgage is €150k, leaving the wife with full ownership of the house and mortgage is much more likely. As long as she continues to pay the mortgage, the bank has no interest in repossessing.

If there is positive equity in the house - say a house worth €200k and a mortgage of €120k. The Official Assignee will sell the house for €200k, pay off the mortgage and give the wife half her share of the remainder i.e. €40k. However, the Official Assignee will offer to sell the house to the wife first for €40k. So she pays €40k and ends up with a house worth €200k and a mortgage of €120k.

 

[daftpunk]

That's great thanks Brendan.

On a mortgage of 300k;(and the house is worth 150k)
I had a strange assumption, that the spouse who was not bankrupt would only owe 150k, as the spouse who was made bankrupt would have their share of the debt owed(150k) written off.

Thanks for clearing that up.

Daftpunk.

 

[ontour]

Brendan,

Does the wife not end up with a mortgage of 160k? House 'sold' for 200k and she offsets her equity of 40k. or the bank lets her add 40k to mortgage to pay off husband: 120k +40k

 

[Brendan Burgess]

If there is positive equity in the house - say a house worth €200k and a mortgage of €120k. The Official Assignee will sell the house for €200k, pay off the mortgage and give the wife half her share of the remainder i.e. €40k. However, the Official Assignee will offer to sell the house to the wife first for €40k. So she pays €40k and ends up with a house worth €200k and a mortgage of €120k.

(Sorry, I had the wrong figure in for the mortgage and have edited it now.)

This is how I see it...

|Before bankruptcy
House value|€200k
Mortgage|€120k|
Combined equity|€80k
Wife's share|€40k
Husband's share|€40k

Wife pays OA €40k from her savings - the total mortgage and house value don't change.

|after bankruptcy
House value|€200k
Mortgage|€120k|
Equity|€80k
Wife's share|€80k
Husband's share|€0k

If the wife does not have €40k in savings, and the bank lends it to her, then her mortgage would increase to €160k.