Declaring Bankruptcy in Australia is a difficult to understand process, but I know from meeting with thousands facing the likelihood of bankruptcy over the years, that pretty much nothing concerns people more than the thought of losing the family home. Almost everyone is emotionally connected to their home – it’s where the kids have grown up, it’s where you appreciate life on a day to day basis.
Will you lose your home if you go bankrupt? The response is a resounding maybe. (not very helpful, I know) People generally presume it’s an inevitable consequence and a part of Declaring Bankruptcy, and therefore push themselves to the brink of insanity to not lose the family home. But when it comes to the whole process of Declaring Bankruptcy, a key advantage of Debt Agreements and Personal Insolvency Agreements is you can keep your house. The reason is simple: you’ve accepted to pay back the debt you are in.
So how is it possible to keep my Australia house, you ask? It’s easier if I explain the basic principle behind the Declaring Bankruptcy process as administered by the trustee, then you’ll have a clearer image.
The job of the bankruptcy trustee is to firstly follow the regulation of the bankruptcy act 1966 (it’s a very plain read about 600 pages if you are serious).
Within that regulatory framework, the trustee is to help recuperate monies owed to your creditors, that is carried out in a bunch of distinct ways but it mainly comes down to income and assets. The trustees role is to collect payments over and above your income threshold. The further role is to sell any assets that can contribute to fixing your debts.
What this seems like is that yes the trustee will sell your house right? Not always. The only reason the trustee will sell any asset including your house is to get money to pay back your debts. If there is no equity on your property then it’s pointless to sell your home. This is happening much more since the GFC as house prices in many regions have been heading south so what you paid 4 years ago may not automatically reflect the price today.
A quick word of advice here if you have a house in Australia and are looking at Declaring Bankruptcy: get a qualified professional to help you through this process, there are a number of variables in these scenarios that have to be considered.
You might wonder, why would the bank want bankrupt clients? wouldn’t they need to sell your house and not take the risk? The bank that has generously lent you the money for your house is making good money every month in interest out of you, month in month out, as long as you keep up to date with your repayments then the bank wants you in there at all costs. Essentially however it’s not the bank’s call if the trustee decides that there is loads of equity in your house the trustee will force you and the bank to sell the house.
When you file for bankruptcy you are asked to mark the value of your house and the level you owe on the house. A tip if you are attempting to work out the value of your house: use a registered valuer as this will offer you peace of mind, don’t use your neighbours’ gut feel recommendations or a real estate agents advice to get to this figure. When you get a valuer out to your house, ensure that you tell the valuer to value the property for a quick sale, see to it you mow the lawn and don’t leave the kitchen in a mess also.
Valuers used to give two valuations: one for a quick sale and one for a well marketed non time sensitive sale. These days that’s not the case, but if you meet them and let them know you need to sell the house in the next 30 days you may control the result. The idea is that you want a sensible sell now figure.
There are two main reasons this valuation technique is critical to you: one you will have peace of mind ascertaining the market value of your house, and after that you can easily establish your equity position. The second thing is, your property may be worth much more than you thought. Get some tips before doing this. The number of times I’ve met clients that have sold their family home of 20 years only to find out I could of helped them keep it; unfortunately this happens all too often
When it comes to Declaring Bankruptcy and houses, another big consideration is ownership, in most cases houses are purchased in joint names. In other words a couple may be a house 50/50 using both incomes to make the payments. If one party declares bankruptcy and the other party doesn’t, the equity is only factored on the 50 % of the property.
When it concerns Declaring Bankruptcy, this is just one of potentially hundreds of scenarios that are possible when it relates to the family home. Bear in mind the non-bankrupt party can buy the bankrupt’s part of the house in bankruptcy also. I should repeat this but get some help on this area of Declaring Bankruptcy because it is very tricky and every case is different.
If you would like to learn more about what to do, where to turn and what questions to ask about Declaring Bankruptcy, then feel free to call Bankruptcy Advice Australia on 1300 879 867, we have offices in, Brisbane, Canberra, Sunshine Coast, Sydney, Melbourne, Gold Coast, Adelaide, Perth, Darwin and Hobart. or visit our website: www.bankruptcy-advice.com.au/