Unemployment and Bankruptcy: Everything You Need to Know

The loss of a job is always a stressful situation, whether it’s through dismissal or redundancy. At this time of year, having a steady income never seems more important, but thanks to the continuing financial difficulties the UK is facing, jobs have also never felt more insecure.


One of the biggest worries for those facing unemployment is the risk of bankruptcy and the fate of the family home. Homeowners naturally carry massive debts in the form of mortgages, but what will happen to your home in the unfortunate event of bankruptcy?

Could I lose my home?

The process of bankruptcy is designed to help people retain their properties whilst paying off as much of their debt as possible. However, whether you’ll be able to keep your home or not comes down to the amount of equity the house has.

Your home will be exempt from liquidation if it doesn’t have any non-exempt equity. The sum of this can be calculated by firstly figuring out the unencumbered equity, which can be found by taking the houses’ market value and deducting your loans and liens on the property.

Then, find the home’s bankruptcy c ode, subtract it from the unencumbered equity and, if the amount left is less than that which you owe, you will be able to retain the house.

Will I lose my house if I lose my job?

Fortunately, losing your job does not mean that you will automatically lose your house. Many lenders will allow homeowners to discuss their monetary situation and most will help to come to some form of arrangement on your mortgage payments.

Loan modification is best achieved if you talk to your lender as soon as you find out about your job loss. Through this process, the lender may offer you several alternative loan repayments that may allow you to keep paying the mortgage whilst being unemployed.

A common arrangement is the extension of the mortgage with the benefits of a lower interest rate and smaller monthly payment. This will mean you have the mortgage for a much longer period, but repayments are much easier to keep up with.

Can the government help?

There are several ways in which the government will set out help for those who lose their jobs and are homeowners. One of the most common is the Home Affordable Unemployment Program. In the US, this scheme offers an incentive to the mortgage lender to provide lower and more affordable monthly repayments for those that find themselves unable to meet the high mortgage costs.

Some homeowners may find it a relief to know that 77% of those who file for bankruptcy are non-homeowners, making those who have a mortgage much less likely to have to file for bankruptcy.

Photo credit: Okay Yaramanoglu