Bankrupt, Declaring Bankruptcy, Bankruptcy
March 7, 2017 800

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

Posted by:Charles Bosse onMarch 7, 2017

Easily the most significant concern numerous people have with Bankruptcy is without a doubt ‘Will I manage to keep my home?’ and it can be complicated, but in some cases it is achievable.

The only reason where you will be obliged to sell your family residence 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? Just how much equity makes it an asset? We get the problems all the time about Bankruptcy. So here are a few examples to show you how all of it works and help you understand Bankruptcy. Keep in mind if you want to know more relating to Bankruptcy and residential properties feel free to get in contact with us here at Bankruptcy Experts on 1300 818 575, or check out our website: www.freshstartsolutions.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 seemed great. Having said that in recent years the work has dried up, prices have dropped and their debt has just kept increasing. Now they are needing to take a look at Bankruptcy as a result of substantial personal debts and mortgage.
They bought the home for $450,000, and they have $80,000 in various other debts.
They really wish to keep their home but wonder if they could. They know that residential property prices, if anything, have dropped in the town in the last 5 years so to be safe they believe that their house is currently 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 various other houses in the streets close by have sold for most recently.

Over the past 5 years they have just been repaying the interest, so they still owe the initial $450,000.
Current House Value = $450,000.
Current Mortgage Value = $450,000.
Net Equity Value = $0.

Considering that there is no equity in this specific property the trustee will not ask Tanya and Matt to sell their house when they go bankrupt, so long as they maintain the mortgage repayments then all will be fine for them for the 3 years they remain in insolvency.
At the end of the bankruptcy period of time the trustee will contact them and inquire if they wish to take over ownership of their home again and provided that it has not increased in price over the 3 years they have been insolvent they will be asked to make an offer to get their home back. This is generally somewhere between $3,000 and $5,000 to cover the legal expenses of changing the land title deed etc. This was a pretty simple scenario 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 worth $900,000.

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

As a result of a recent business problem Bill is about $240,000 in the red. Michelle who does work in banking has a separate job and no other personal debts apart from the home loan. Bill can not pay his debts so he is taking a look at Bankruptcy. Michelle is concerned that she too may need to file for bankruptcy or be driven into it because of the home loan.

Here in this particular instance the trustee is required to access or get their hands on Bill’s share of the equity which is $50,000 less marketing expenses. These professionals might do this in a few ways; 1. Have them sell off the home. 2. Welcome Michelle to buy Bills half of the equity. 3. leave them in the home – but it’s quite unlikely in this scenario that the trustee will be happy to leave Bill and Michelle in the house because there is simply too much 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’ fifty percent and from that time its now 100 % Michelle’s property.

Property and Bankruptcy in Australia is confusing 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 should know much more about Bankruptcy and residential properties do not hesitate to speak to us here at Bankruptcy Experts on 1300 818 575, or check out our website: www.freshstartsolutions.com.au.

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