Losing your home: How much do you know of Bankruptcy in Australia?
The most considerable issue numerous people have with Bankruptcy is without a doubt ‘Can I manage to retain my house?’ and it may be complicated, but in some cases it is achievable.
The only justification where you will be obliged to sell your family house when you declare bankruptcy is if you have equity in the home so that it is considered an asset. But how does this work? What is equity? Just how much equity can make it an asset? We receive the questions frequently about Bankruptcy. So here are a few examples to show you how it all works and help you learn about Bankruptcy. Bear in mind if you wish to know more relating to Bankruptcy and residential properties don’t hesitate to get in contact with us here at Bankruptcy Experts on 1300 795 575, or check out our website: www.bankruptcyexperts.com.au
Case Study 1. (Tanya & Matt).
5 years ago Matt and Tanya purchased a house in a mining town, they relocated there for work during the mining boom therefore prices were higher, and life seemed good. However recently the work has dried up, prices have gone down and their debt has just kept growing. Now they are needing to take a look at Bankruptcy due to significant liabilities and mortgage.
They bought the house for $450,000, and they have $80,000 in other debts.
They really want to keep their home but question if they can. They know that residential property prices, if anything, have decreased in the area in the last 5 years so to be safe they think that their home 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 properties in the streets nearby have sold for recently.
Over the past 5 years they have solely been paying off the interest, so they currently 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 within this specific property the trustee will not ask Tanya and Matt to sell their house when they declare bankruptcy, provided that they keep up the mortgage payments then all will be fine for them for the 3 years they remain in personal bankruptcy.
At the end of the insolvency amount of time the trustee will contact them and ask if they want to take control of ownership of their house again and provided that it has not grown in price over the 3 years they have been bankrupt they will be requested to make an offer to get their house back. This is generally somewhere around $3,000 and $5,000 to pay for the legal costs of modifying the land title deed etc. This was a fairly basic sample to demonstrate how a house may be taken into consideration 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 down payment 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.
Due to 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 mortgage. Bill can not pay out his financial obligations so he is having a look at Bankruptcy. Michelle is worried that she too may have to file for insolvency or be driven into it as a result of the home loan.
Here in this specific situation the trustee is required to gain access to or get their hands on Bill’s share of the equity which is $50,000 less marketing costs. They may carry this out in a couple of ways; 1. Have them sell off 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 instance that the trustee would be happy to keep Bill and Michelle in the home considering that 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’ fifty percent and from that time its now 100 % Michelle’s home.
Property and Bankruptcy in Australia is confusing and tricky. These two case studies above are just the tip of the iceberg as far as your options in Australia are concerned. If you need to know much more about Bankruptcy and houses do not hesitate to get in touch with us here at Bankruptcy Experts on 1300 795 575, or check out our website: www.bankruptcyexperts.com.au.