“Could not Paying a Bounce Back Loan Cost Me the Family Home”?
In most cases, not paying a Bounce Back Loan won’t directly result in losing your family home. Bounce Back Loans are unsecured loans, which means your house was not used as collateral when you took out the loan, whether you’re a sole trader or operating through a limited company.
A key clause in the original Bounce Back Loan rules states: No recovery action can be taken over a borrower’s main home or primary personal vehicle[1]Trusted Source – British Business Bank – FAQs about About the Bounce Back Loan Scheme.
However, this doesn’t mean your home is entirely risk-free if you default. While the lender can’t directly claim your house, there are indirect ways your home could be affected:
Sole Traders Would Only Risk Losing a House in Bankruptcy
While the BBL lender itself can’t go after your primary residence, getting pushed into personal bankruptcy could put your home at risk.Here’s how:
If you default on the Bounce Back Loan, the lender may initiate court proceedings to recover the debt, resulting in a County Court Judgment (CCJ) against you.
If you’re unable to pay the CCJ, the creditor might petition for your bankruptcy.
In bankruptcy proceedings, your assets (including your home) may be at risk, as the Official Receiver or Trustee in Bankruptcy has a duty to realise assets for the benefit of creditors.
In bankruptcy, your home could be considered as an asset, potentially leading to its sale if there’s significant equity.
It’s important to note that this is a worst-case scenario, and there are usually opportunities to negotiate repayment plans or explore other insolvency options before reaching this point.
Seeking early professional advice is crucial if you’re struggling with repayments.
Is There any Risk to the Home for Limited Companies?
As a director of a limited company, the corporate structure of a limited company typically shields your personal assets, including your home, from business debts.
However, it’s crucial to understand the indirect risks that could arise if your company struggles with Bounce Back Loan repayments:
Insolvency: If defaulting on the Bounce Back Loan leads to company insolvency, this is where you need to be cautious. Insolvency doesn’t automatically put your home at risk, but it can trigger a chain of events that might.
Director’s Conduct: During insolvency, your actions as a director will be scrutinised. If you’re found to have acted improperly or continued trading when you knew the company was insolvent, you could face personal liability.
Personal Bankruptcy: In severe cases, if you’re held personally liable for company debts and can’t meet these obligations, you might face personal bankruptcy.
It’s important to note that this is not a direct result of the Bounce Back Loan, but rather a potential consequence of how the company’s financial difficulties are managed.
What Happens if You Default on a Bounce Back Loan?
While the lenders can’t force you to sell your house or another personal asset, they can exert pressure your limited company.
The government has suggested that loan providers who offered bounce back loans utilise their normal debt collection and enforcement methodologies, which may include:
demand letters
debt collection
Where banks consider fraud may have been committed, then they are likely to issue CIFAS markers (CIFAS stands for ‘Credit Industry Fraud Avoidance System) These effectively block individuals from obtaining credit for up to six years. Banks do not notify customers that such action has been taken
If you have a debt that you can’t pay, (or where corporate liabilities exceed assets), your company is insolvent.
The key factor here for directors is that, as the director if an insolvent company, your responsibilities shift towards creditors. This means you must only take actions that benefit creditors, without prioritising any creditor in particular.
You can’t pay staff, therefore, or one supplier over another. This is called acting ‘in preference’ and could hold you liable to charges of wrongful trading further down the line.
In fact, if you’re insolvent you need to take professional advice. Speaking with a professional doesn’t mean you have to liquidate the company, it simply means gaining clarity about the best way forward. This could mean rescuing the business or, if you’re unlikely to return to profitability, closing it down.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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