ANNEX B - EXAMPLE CALCULATION WHERE THE PRINCIPLE OF EQUITY OF EXONERATION IS APPLIED.
In this example the property is registered in the joint names of the bankrupt Mr A and his wife Mrs A who occupy the property as joint tenants. The property is valued at £200,000 and is subject to 2 charges.
The first charge is to Bank 1 for £100,000 and was taken out to assist in the purchase of the property and was registered with Land Registry upon purchase in May 2001. The second charge is to Bank 2 and is for £40,000 and is registered December 2006 and was obtained for the bankrupt’s sole benefit. The bankruptcy order was made in January 2008. There is therefore £60,000 equity in the property (assuming for the purposes of the example that there are no costs of sale).
Normally the equity would be split between the bankrupt and his wife each being entitled to £30,000 (property value of £200,000 less charges of £140,000, with the £60,000 equity being split 50/50).
If the principle of exoneration were applied the calculation would be as follows:
|
Valuation of property |
|
200,000 |
|
LESS |
|
|
|
Amount outstanding to Bank 1 |
100,000 |
100,000 |
|
Net equity to which Mr & Mrs A are entitled |
|
100,000 |
|
Mrs A’s share of equity (50%) |
|
50,000 |
|
Mr A’s (the bankrupt) share of equity (50%) |
|
50,000 |
|
Application of equity of exoneration |
|
|
|
Mr A (bankrupt) entitlement to net equity |
|
50,000 |
|
Less |
|
|
|
Amount due to Bank 2 (being the debt incurred for his sole benefit) |
|
40,000 |
|
Mr A’s (bankrupt) share in equity |
|
£10,000 |
|
Mrs A’s share in equity |
|
£50,000 |