The two types of loans available for post bankruptcy are:
Secured Equity Participation Loan
Interest and Capital Repayment Loan
1. Very low cash outflow on borrowing for 5 years. This is important, as it allows the bankrupt to reduce his cash outflow commitments at a crucial (and sometimes desperate) stage. This is designed to help the bankrupt get back on his feet as quickly as possible.
2. No capital repayment for 5 years.
3. Can buy out loan, remortgage or sell home (to buy a new one) at any stage during the loan.
1. The loan participates in the equity growth (if any) in the property. The growth (if any) reflects the nature of the lending risk. However, it is very important to emphasise:
a. Without the loan or some other means of purchasing it back out of the bankrupt estate, the bankrupt loses all his equity (forever) in his home.
b. The value of the Equity Participation is based upon the value of the bankrupt borrower's share in the equity only.
2. The final repayment amount includes the loan advance (fees and expenses if included) and Equity Participation Amount payable at the same time.
1. All of the future growth in the property value is shared between the bankrupt borrower and the spouse.
1. Puts pressure on cash flow as need to pay back both interest and capital, at a time when it may be hard to sustain.
2. Requires repayments of capital in instalments after 6 months (the Secured Equity Participation loan does not).
