What next

[Skint77]

A friend of mine stopped paying their mortgage & all other bills 6 months ago. They've received letters from the lender, however, nothing desperately threatening. Basically they could no longer afford it, due to reduced working hours and it had fell into neg equity. There has been no direct contact with the lender or other creditors. And now they want to move things on. How do they go about it? There is now arrears of around �10k & and overall liabilties circa �160k - do they file for bankruptcy or will someone make them bankrupt? Also house contents & buildings ins was cancelled some time ago, should this have been kept up? Thank you

[CheekyChops]

Eventually the lenders will go for a repossession order for the house and your friend will be liable for the shortfall after the house is sold.

You don't say what the other debts are but it is unually for a creditor to file for bankruptcy as it costs them money, usually the debtor who have to make themselves bankrupt.

[Skint77]

Thanks CC; other debts are utilities etc circa �4k - �6k in secured liablity arrears. There is also an additional unsecured debt of �9k owed privately which is now subject to court proceedings.

From your answer, do you think they just need to file for bankruptcy then? also do you have any comments on the fact that the insurances have been cancelled? Thanks

[cassa333]

As far as I am aware you should have buildings insurance for morgage purposes. If your house fell down you would have a huge morgage on nothing. However as they are not paying the morgage, paying the buildings insurance probably isn't high on there agenda.

Contents insurance is up to the individual. If they were burgled (or the house fell down) they wouldn't be able to get new stuff.

Overall they would be homeless, possessionless and have huge debts.

[Uzoma]

I would suggest that you get in contact with the lender ASAP and explain your situation. The debt won't go away and they will still come after your friend even if they repossess. If the issue is reduced working hours, I can assume that there is still an income so explaining this and proposing a reduced monthly payment with a bit extra to reduce the arrears may be an option.
Always try and keep up the insurance as this may cover you in the event of something major happening to your home. If something were to happen (God forbid, fire for example), the friend would still be liable for the mortgage as well as the damage.
Bankruptcy is usually a very last option - IVAs may be a solution.
On the BBC's Working Lunch page --> www.bbc.co.uk/workinglunch, there was a debt expert talking on today's programme plus a good explanation on the difference between IVAs and bankruptcy that you may find really useful.

[aliyahwestling]

Some alternatives to filing for personal bankruptcy include debt repayment plans, interest rate reduction plans, and debt consolidation.

[Old_Geezer]

My thoughts are they should talk to Citizen's Advice, who will probably advise them to be up front with the lenders, especially mortgage lender, who will want to find a mutually acceptable way forward in preference to cutting losses and bringing it all down. It's more profitable for them to do so.

Having no insurance is a risk, but one can opt to take it. May get away with it, may not. That said the mortgage lender will probably have a rule about house/building insurance being obligatory since they won't want risks to be taken.