Good to hear from you SkintAlly.

To be double certain, this property was owned when your trust deed was signed?

Were you on the same mortgage when the trust deed was signed?

Yep, everything is still the same. The non secured part of the loan was included with the td

Hi SkintAlly,

James Lloyd, a partner with Harper MacLeod and who heads up their Insolvency Team and issued a blog in 2012 relating to mortgage shortfalls in a Sequestration.

I was going to summarise his blog but it makes more sense for me to copy and paste this which is below:

ÔÇ£We are often asked to give advice on whether mortgage shortfalls i.e. the amount left due to a
secured lender once a property has been repossessed and sold, should be classed as pre or
post sequestration debts. If the debt is a pre sequestration debt then the debtor will be
discharged of it on being discharged and the lender may submit a claim in the sequestration. If,
on the other hand, it is a post sequestration debt then the lender is not entitled to submit a claim
but may instead pursue the debtor for it.

The answer lies in the provisions of Section 55 of the Bankruptcy (Scotland) Act 1985. This
provides that, on the debtor's discharge under section 54 he shall be discharged within the
United Kingdom of "all debts and obligations contracted by him, or for which he was liable at the
date of sequestration." The section then lists certain debts and obligations (such a fines
imposed by courts or debts occasioned by fraud, etc.) from which he will not be discharged.
Section 55(3) provides that the discharge of the debtor shall not affect the right of a secured
creditor to enforce his security for payment of the debt and any interest on the debt until the
debt is paid. This subsection was added with retrospective effect by the Bankruptcy (Scotland)
Act 1993 following comments made by some academics at the time that Section 55 as it was
then drafted had the effect of discharging secured debts.

Schedule 1 of the Act provides which amounts may be claimed in a creditor's sequestration.
Para 1 specifically provides that a creditor is entitled to submit a claim for the debt due as at the
date of sequestration. Para 5 makes specific provisions in relation to secured debts.

ÔÇ£In our view the cumulative effect of these provisions is that a debtor is discharged of all debts,
including debts that are secured except to the extent that such debts are actually secured. In
those cases a secured creditor can enforce its security to recover the debt due to it but only to
the extent that the security allows it to do so i.e. if the property against which the debt is secured
is worth less than the debt then whatever is realised by the sale of the asset is all that a secured
creditor can recover. Any shortfall, being a debt incurred prior to the date of sequestration, will
be discharged, although the creditor can submit a claim in the debtor's sequestration.

In our view this situation applies, even if any sale occurs sometime after the date of
sequestration and discharge, although the ability of a creditor to submit a claim will be limited if
the sequestration has concluded.ÔÇØ

On this basis if you were to return the property to the secured lender you would not be liable for any shortfall.

Hope this helps to clarify things.

Hi David, thanks for your reply. Would this still apply then if the trustee has been discharged? as there would be nothing for the lender to claim against.

I seem to have some moral discomfort in going ahead with this, but if its possible, then it would make perfect sense. I don't imagine it would have any further negative effect on my credit rating either?

Ally

Hi SkintAlly.

I'm going to stay out of the technical aspects of this which David appears to have covered.

In terms of your credit rating however, I'd think that a repossession of any type would have a significant effect. Previous repossessions are also something that's often asked about on mortgage application forms.

Lol my complicated questions always seem to get more complicated. How would this work with a private sale then as opposed to the repossesion?

Hi SkintAlly.

This issue with this is whether the secured lender would be prepared to let such a sale proceed?

Nothing to be lost by asking them though.

Hi SkintAlly,

From my understanding of what James Lloyd has advised even if the Trustee is discharged you would still not be liable for the shortfall following the sale.

I don't think a lender will automatically realise this and it may only be when they pass your file to a solicitor for collection of the shortfall will they realise. Maybe best to keep the advice above safe should you need to refer to it in the future.

Practically speaking I've not dealt with something like this before. When a client is discharged and we are discharged we don't tend to hear from them again unless they need another Trust Deed. If someone were to hand a property back after our discharge we wouldn't find out about it unless the secured lender wanted confirmation of the Trust Deed in the first place.

If you have negative equity, a private sale or repossession will probably still result in a shortfall which could impact on your credit rating. Something to be mindful of.

Thanks David. At worst case, this at least gives me an option. I'm not as trapped as I thought I was. Its doubtful, but i suppose this might actually give me a bargaining tool.

Thanks TDA also. 🙂

No problem SkintAlly.

I suspect I know which lender this is from something you wrote earlier - I'm putting a couple of things "together" if you know what I mean?

If I'm correct - are you now with the "good bank" or the "bad bank"?

Very cryptic TDA lol. I get the first bit, and yep, that's the company all right. I'm intrigued with the second part however as I haven't heard of the good bank and bad bank???

Ah ha! Thanks to Google, it's the bad bank. Should have guessed lol 🙂

Evening folks, it's been a while. Hope everyone is well. Sorry to bring this one back to the table, was just curious to know if anything of a similar nature has cropped up in the last two years. In my time away from the forum my credit rating has increased considerably for the better with only green marks showing but I am still stuck with this same property and it's still 10 to 15k in the red. I just wish I could move on