If you declare bankruptcy, this does not automatically mean that you will lose your home especially if you have little or no equity or are renting.

Bankruptcy has significant advantages for someone who is struggling with serious debt. The process generally lasts for just 12 months and you will only have to pay towards your debt if you can afford to do so.

Once you are declared bankrupt, your creditors can no longer harass or chase you for debt so phone calls and letters stop. You will be allowed to keep all of your reasonable household goods such as your TV, stereo, dishwasher and washing machine.

However, for those who are unable to pay their debt, bankruptcy is often considered as last resort because they are worried that they will lose their home.

But for many people their house is not at risk.

Those who rent their property

About 35% of households in the UK rent their property. If you rent and go bankrupt, it is extremely unlikely that you will be asked to leave your property.

As a bankrupt person, you are allowed to maintain control of your expenditure budget including the money to pay in rent. As long as this continues to be affordable and you maintain the payments on time (which you should be able to do if your debts have been taken away from you) then your landlord will not normally have a problem.

There are often clauses in private rental agreements which allow a landlord to ask a tenant to leave the property if they have been declared insolvent or bankrupt.

However, if the tenant is up to date with the rent and can show that this will continue to be paid, most landlords will not wish to upset the apple cart in terms of their rental income by forcing out a tenant.

What happens if you own your home?

If you are a homeowner, the decision about whether to declare bankruptcy or not becomes a little more complicated. Whether or not your house will be at risk very much depends on whether you have any equity in it.

If you have little or no equity in your property, and the house was sold, there would be nothing to gain for your creditors. For this reason the official receiver will not normally want to sell the property if you declare bankruptcy.

However, you must ensure that once you are bankrupt, you immediately buy back the beneficial interest in the property. This means that you regain the title of your house this protecting it from sale at a later date. This process will normally cost about £211.

Homeowners with equity

Generally speaking, homeowners who have equity in their property will want to avoid bankruptcy.

The problem is that the equity is an asset which must be realised for the benefit of the creditors. For this reason, any property you own with equity in it is at risk if you declare bankruptcy.

You cannot escape this situation by simply transferring your house into someone else’s name. Any such transfers which take place within 5 years of you declaring bankruptcy can be overturned by the court.

It is possible for a friend or family member to buy your equity from the court meaning that the equity is simply raised for your creditors without the need for the sale of the house. The property would be then simply returned to you.

The inability to repay personal debt is a serious problem for many people in the UK. The most important first step if you have a debt problem is to get the right advice and consider all of the options available to resolve the problem.

Bankruptcy may sound like a nightmare scenario. However, for very many people it is a very sensible way of dealing with debts and will certainly not result in the loss of their home.