Will I be able to keep my house if I file for bankruptcy?
FAQs - Assets

When you purchased your house (also referred to as unmovable property), you took out a loan with a registered financial institution e.g. ABSA, FNB, Standard Bank, Nedbank, SA Home Loans, to name but a few, to pay the purchase price. The relevant financial institution agreed to loan you the necessary funds to finance the purchase of your unmovable property, subject to:

  1. Certain financial charges being levied;
  2. Interest being levied on the outstanding balance due, calculated at a certain percentage based on the prime interest rate;
  3. Your undertaking to repay the capital amount in monthly installments over a certain period of time (usually 20 years) together with the financial charges and the aforementioned interest;
  4. Your consent that a mortgage bond be registered in the Deeds Office over the unmovable property in favour of the relevant financial institution, in terms of which the unmovable property serves as exclusive security in favour of the relevant financial institution (also referred to as the Bondholder) for the aforementioned repayment of your loan, finance charges and interest, commonly referred to as your bond repayment or mortgage bond repayment.

One effect of the aforementioned mortgage bond is that if you fall behind on your bond repayment, the financial institution (Bondholder) will be entitled to "call up" the bond account and demand payment of the full outstanding balance due, together with interest calculated until date of payment in full. If the total re-payment is not forthcoming, formal summons will be issued at the discretion of the Bondholder. Although this could take anything from 3 to 9 months, subsequently legal action will be quick - judgement will be taken against you and the property will be attached by the Sheriff for purposes of selling it on an execution auction to the highest bidder. The auction usually takes place within 5 weeks of the attachment, as it has to be advertised in the Government Gazette 14 days prior to the auction date.  Once the property has been sold, you will be held liable for any shortfall and legal charges.

Another effect is that the fixed property cannot be sold without the Bondholder's consent and cancellation of the bond. In most cases the consent and cancellation will only be given if a subsequent buyer provides the Bondholder's attorneys with a formal guarantee of settlement of the current bond balance, issued by the buyer's bank on the basis of a new approved bond.

It is because of the above mentioned, that a Bondholder is referred to as a Secured Creditor. Unless the bond is settled in full, a Bondholder will be entitled to realise their security to recover the balance due on the mortgage bond loan. Bankruptcy does not affect the Bondholder's security at all, therefore if you file for bankruptcy - the Bondholder will be entitled to realize their security and will instruct the Trustee do so as soon as possible. The only advantages will be that this process will take much longer due to certain requirements of the Insolvency Act that the Trustee must first complied with and secondly, any resulting shortfall after the property has been sold, will vest in the insolvent estate - it will thus not be for your account and will be written off along with your other unpaid debt.

As clearly evident from the above mentioned, it will not be possible for you to keep the property after filing for bankruptcy.