Will I lose my home if I go bankrupt?
Declaring Bankruptcy in Australia – Will I lose my home if I go bankrupt?
Declaring Bankruptcy in Australia is a tricky process, but I know from meeting with thousands facing the possibility of bankruptcy over the years, that not much worries people more than the idea of losing the family home. Almost everyone is sentimentally connected to their home – it’s where the children have grown up, it’s where you take pleasure in life on a day to day base.
Will you lose your house if you go bankrupt? The response is a resounding maybe. (not very helpful, I know) People typically 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 strength 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 theory behind the Declaring Bankruptcy process as administered by the trustee, then you’ll have a clearer idea.
The role of the bankruptcy trustee is to firstly comply with the regulation of the bankruptcy act 1966 (it’s a very dull read about 600 pages if you are curious).
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 beyond your income threshold. The other role is to sell off any assets that can contribute to repaying your debts.
What this seems is that yes the trustee will sell your house right? Not necessarily. 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 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 always reflect the price today.
A quick word of advice here if you have a house in Australia and are looking at Declaring Bankruptcy: get an expert to help you through this process, there are loads of variables in these scenarios that have to be considered.
You might wonder, why would the bank want bankrupt clients? wouldn’t they want to sell your house and not take the risk? The bank that has generously lent you the money for your house is generating good money every month in interest out of you, month in month out, so long as you keep up to date with your fees then the bank wants you in there at all costs. Ultimately 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 amount 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 provide you peace of mind, don’t use your neighbours’ gut feel advice or a real estate agents advice to get to this figure. When you get a valuer out to your house, see to it you tell the valuer to value the property for a quick sale, make sure you mow the lawn and don’t leave the kitchen in a mess also.
Valuers used to offer 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 sensible sell now figure.
There are two main reasons this valuation system is critical to you: one you may have peace of mind ascertaining the market value of your house, and after that you can easily develop your equity position. Second of all, your home may be worth a lot more than you thought. Get some advice before doing this. The amount of times I’ve met clients that have sold their family home of 20 years only to discover I could of helped them keep it; unfortunately this happens all too often
When it comes to Declaring Bankruptcy and houses, another primary consideration is ownership, often houses are acquired in joint names. Simply put 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 relates to Declaring Bankruptcy, this is just one of possibly numerous scenarios that are possible when it comes to the family home. Bear in mind the non-bankrupt party can buy the bankrupt’s part of the property in bankruptcy also. I need to 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 speak to Bankruptcy Experts Australia on 1300 795 575, we have offices in, Brisbane, Canberra, Sunshine Coast, Sydney, Melbourne, Gold Coast, Adelaide, Perth, Darwin and Hobart. or visit our website: www.bankruptcyexperts.com.au.