Bankruptcy in Australia is a tricky process, but I know from meeting with thousands facing the likelihood of bankruptcy over the years, that nothing concerns people more than the notion of losing the family home. Almost every person is on an emotional level connected to their home – it’s where the children have grown up, it’s where you appreciate life on a day to day base.
Will you lose your home if you go bankrupt? The reply is a resounding maybe. (not very helpful, I know) People generally feel that it’s an inevitable consequence and a part of Bankruptcy, and because of this push themselves to the brink of insanity to not lose the family home. But when it comes to the whole process of Bankruptcy, a key benefit of Debt Agreements and Personal Insolvency Agreements is you can keep your house. The reason is simple: you’ve agreed 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 guideline behind the Bankruptcy process as administered by the trustee, then you’ll have a clearer image.
The duty of the bankruptcy trustee is to firstly follow the regulation of the bankruptcy act 1966 (it’s a very boring read about 600 pages if you are intrigued).
Within that regulatory framework, the trustee is to help recuperate monies owed to your creditors, that is executed in a bunch of different ways but it mainly comes down to income and assets. The trustees role is to collect payments over your income threshold. The further role is to sell off any assets that can contribute to fixing your debts.
What this sounds like is that yes the trustee will sell your house right? Not always. The only reason the trustee will sell off any asset including your house is to get money to repay your debts. If there is no equity in your home then it’s pointless to sell your home. This is happening much more since the GFC as house prices in many areas have been heading south so what you paid 4 years ago may not necessarily reflect the price today.
A quick word of advice here if you have a house in Australia and are looking at Bankruptcy: get a 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 hope to sell your house and not take the risk? The bank that has generously lent you the money for your house is earning good money every month in interest out of you, month in month out, provided that 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 a lot 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 note the value of your house and the quantity you owe on the house. A tip if you are trying to work out the value of your house: use a registered valuer as this will provide 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 property, make sure you tell the valuer to value the property for a quick sale, make certain 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 delicate sale. Nowadays that’s not the case, but if you meet them and tell them you need to sell your home in the next 30 days you may sway the result. The idea is that you want a reasonable sell now figure.
There are two reasons this valuation system is critical to you: one you will definitely have peace of mind ascertaining the market value of your house, and then you can easily establish your equity position. The second thing is, your property may be worth even more than you thought. Get some guidance before carrying this out. The number of times I’ve met with clients that have sold their family home of 20 years just to learn I could of helped them keep it; unfortunately this happens all too often
When it comes to Bankruptcy and houses, another big consideration is ownership, often 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 does not, the equity is only factored on the 50 % of the property.
When it involves Bankruptcy, this is just one of possibly numerous scenarios that are likely when it comes down to the family home. Bear in mind the non-bankrupt party can buy the bankrupt’s part of the property in bankruptcy also. I should repeat this but get some assistance on this area of Bankruptcy because it is very tricky and every case is different.
If you want to learn more about what to do, where to turn and what questions to ask about Bankruptcy, then feel free to get in touch with Bankruptcy Experts Australia on 1300 795 575, or visit our website: www.bankruptcyexperts.com.au.