Losing your home: How much do you know of Bankruptcy in Australia?

The most significant concern numerous people have with Bankruptcy is without a doubt ‘Will I manage to retain my home?’ and it can be complicated, but sometimes it is attainable.

The only reason where you will be required to sell your family house when you declare bankruptcy is if you have equity in the home so that it is thought as an asset. But exactly how does this work? What is equity? How much equity makes it an asset? We get the problems frequently about Bankruptcy. So here are a few examples to demonstrate to you how it all works and really help you comprehend Bankruptcy. Keep in mind if you want to know more regarding Bankruptcy and houses don’t hesitate to get in touch with us here at Bankruptcy Advice on 1300 879 867, or check out our website: www.bankruptcy-advice.com.au

Case Study 1. (Tanya & Matt).

5 years ago Matt and Tanya purchased a house in a mining town, they relocated there for their job during the mining boom and so prices were higher, and life appeared good. However in recent times the work has dried up, prices have dropped and their debt has just kept increasing. Now they are having to look at Bankruptcy as a result of substantial debts and home mortgage.
They purchased the house for $450,000, and they have $80,000 in other unpaid debts.
They really wish to keep their house but question if they could. They know that house prices, if anything, have gone down in the region in the last 5 years so to be safe they believe that their home is at present only worth $450,000 after all these years. To make sure they researched www.realestate.com.au sold category of the site to see what other properties in the streets close by have sold for recently.
Over the past 5 years they have only been repaying the interest, so they currently owe the original $450,000.
Current House Value = $450,000.
Current Mortgage Value = $450,000.
Net Equity Value = $0.

Because there is no equity within this particular property the trustee will not ask Tanya and Matt to sell their house when they declare bankruptcy, so long as they maintain the mortgage repayments then all will be fine for them for the 3 years they are in bankruptcy.
At the end of the insolvency amount of time the trustee will contact them and inquire if they want to take over ownership of their home again and provided that it has not grown in price over the 3 years they have been bankrupt they will be asked to make an offer to get their home back. This is generally somewhere around $3,000 and $5,000 to cover the legal fees of modifying the land title deed etc. This was a pretty simple example to demonstrate how a house may be considered by a trustee when there is no equity involved.

Case Study 2. (Bill & Michelle Johnson).

2 years ago Bill and Michelle bought a townhouse in a nice suburb of Australia for $850,000. They tipped in $50,000 as a deposit and now the townhouse two years later is valued at $900,000.

Current House Value = $900,000.
Current Mortgage Value = $800,000.
Net Equity Value = $100,000.

Because of a recent business problem Bill is about $240,000 in debt. Michelle who does work in banking has a different job and no other personal debts apart from the mortgage. Bill can not pay out his financial obligations so he is taking a look at Bankruptcy. Michelle is concerned that she too may have to file for insolvency or be driven into it due to the house loan.

Within this specific case the trustee is required to gain access to or get their hands on Bill’s half of the equity which is $50,000 less marketing costs. They could accomplish this in a couple of ways; 1. Have them sell the home. 2. Invite Michelle to purchase Bills half of the equity. 3. leave them in the home – but it’s quite improbable in this scenario that the trustee will be happy to keep Bill and Michelle in the home since there is just a lot of equity.
So Michelle may have the capacity to buy Bill’s percentage of the equity by coming up with $50,000 and buying out Bills’ half and from that moment its now 100 % Michelle’s property.

Property and Bankruptcy in Australia is difficult to understand and tricky. These two case studies above are simply the tip of the iceberg as far as your options in Australia are concerned. If you need to know more about Bankruptcy and houses feel free to contact us here at Bankruptcy Advice on 1300 879 867, or have a look at our website: www.bankruptcy-advice.com.au.