Hi blacklily.

I'd be interested to here from one of our insolvency experts about whether the student loan will be seen as income. I've read contradictory answers on this question in the past.

Regarding equity, if the bankruptcy trustee considers that there is equity then your home may be put in jeopardy.

If you make a direct application for bankruptcy a trustee will be appointed after you have become bankrupt. They'll check whether there is equity. You will not know for sure whether they'll conclude that there is equity until there is no way back.

You might be able to appoint your own trustee to deal with your bankruptcy. This will only be possible if you have something to contribute (for example a monthly payment) as this is the only way they can recover their fees. If you go about it this way, you'd potentially know where you stood with equity before you become committed. You could choose a different route if your home would be put in peril.

The issue with valuations is that they're subjective. They're an opinion. Two professional valuers could, in good faith, come up with materially different figures.

Thanks TDA. I thought that might be the case with the equity. Student loan is a funny thing. I currently get tax credits and they don't count as income, however when I get moved over to universal credit it will be counted as income. I am continuing with the DMP and was just considering all options.

Hi blacklily.

Tax credits do count as income, but bankruptcy or trust deed payments can't be funded by them. Payments can only be funded via private income, such as a job or a private pension. I'm not sure whether student loan income is seen as income at all, let alone private income.

A debt management plan provider isn't subject to these rules. They'll form their own view on how to present a financial statement.

I checked this point with staff at the Accountant in Bankruptcy recently actually. Student loans are treated in the same way as benefits, ie they have to be included as income when working out whether you have any surplus that might be available for a contribution to your bankruptcy, however a contribution cannot be sought from those funds. It is only if you have another source of earned income that you could be asked for a contribution.

So in your case, if your only income remains as only tax credits and student loans then you should not have an income contribution to make to your bankruptcy.

The house equity is of course a separate issue altogether and the size of the equity figure will really determine whether an insolvency procedure such as a bankruptcy or a Protected trust Deed would be suitable for you or not. if the equity is reasonably low then the trustee's interest could be "bought out" by third party payments (eg monthly instalments from your husband).

Thanks Kevin. I think my DMP is the best route still, it's possible my half of equity could be up to 19k depending on valuation (if only the actuality of selling house would leave that much equity, but looking at the market, condition of house and fees we would only be left with a couple of grand, not enough to clear debt). It would be too risky to proceed with sequestration.

Thanks for your replies and help, I like to reevaluate our finances every 6 months and mapke sure we are doing the best thing.

How long is your DMP likely to take to complete, blacklily? If it is lengthy then it might be worth considering a Protected Trust Deed.

There is usually a fair bit more flexibility available in a Trust Deed than a Sequestration when it comes to equity. If what you are saying is true, about the realisable equity being actually pretty low, then this can be accounted for in any Trust Deed proposals.

There is every chance that the figure required from your husband for the equity would be much lower than the equity "on paper" and given your circumstances there wouldn't be any need for an income contribution from you then this may be all that is required if your circumstances don't change.

Just a thought. Of course though, if you are comfortably managing the DMP payments and the term isn't too long then that would seem to be most suitable still.

Hi Kevin. I had ruled out a trust deed as I didn't have an income, just student loan and tax credits and wouldn't be able to make a contribution. I am at uni and my circumstances won't change for at least 3.5 years. Would the equity in property be agreed and how it would be dealt with agreed before a trust deed was signed?

To be honest we are just managing the DMP payments and have 7 years to go, it's not the end of the world every month, we get by.

The amount required in respect of equity in your property would be calculated and agreed with your chosen insolvency practitioner prior to you signing a Trust Deed.

The proposal then sent to your creditors would just be on the basis of that amount of equity being paid in by a third party, such as your husband. As long as there aren't sufficient objections then your Trust Deed becomes protected and that equity sum is locked in as the amount required to paid across.

You would also be promising that you pay in whatever is affordable from your earned income for the next 4 years, but that would be set at zero until such time as your circumstances change and you start working.

Thaxted ks Kevin, that's really helpful. I will have a think about it. Would the amount of equity to be paid by husband be due at the end of trust deed?

Not necessarily, it could be paid by instalments over the 4 years for example, or maybe by lump sums at agreed points.