Losing your house: How much do you understand about Going Bankrupt in Australia?

The most important question people have when they come to our team regarding Going Bankrupt is without a doubt ‘Can I manage to keep my house?’ and sometimes the answer is yes, you can manage to keep your house.

The only reason you can be driven to sell your family home when you declare bankruptcy is due to the fact that you have so much equity in the home that it is believed an asset. Please read these basic hypothetical case studies below to get your head around Going Bankrupt and how it has an effect on houses in Australia. Remember If you want to know more about Going Bankrupt and houses feel free to call us here at Bankruptcy Experts on 1300 795 575, or visit our website: http://www.BankruptcyExperts.com.au

Case Study 1. Mike & Sue Smith

5 years ago Mike and Sue purchased a house in a mining town for $450,000. At this time the mining boom was keeping all the property prices nice and high. Now they are needing to look at Going Bankrupt because they have substantial debts of $80,000 on top of their mortgage and credit card and tax debt.

They really wish to keep their house but wonder if they can, they know that house prices if anything have gone down in the area in the last 5 years so to be safe they think that their house is still only worth $450,000 after all these years, to be sure they searched http://www.realestate.com.au/ sold section of the website to see what other houses in the streets nearby have sold for fairly recently.

Unfortunately they have not paid any principal of the home loan over the last 5 years, mainly just interest, so they still owe $450,000.

  • Current House Value = $450,000.
  • Current Mortgage Value = $450,000.
  • Net Equity Value = $0.

Because there is no equity in this particular property the trustee will not ask Mike and Sue to sell their property when they go bankrupt, as long as they keep up the mortgage payments then all will be well for these people for the 3 years they are in bankruptcy.

At the end of the bankruptcy time period the trustee will write to them and ask if they want to take over ownership of their house again and so long as it has not grown in price over the 3 years they have been bankrupt they will be asked to make an offer to have their house back. This is normally somewhere between $3,000 and $5,000 to cover the legal costs of modifying the land title deed etc.

Now let’s look at a slightly different example of Going Bankrupt and houses.

Case Study 2. Bill & Michelle Johnson

2 years ago Bill and Michelle bought a townhouse in a wonderful 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 failing Bill is about $240,000 in debt. Michelle who does work in banking has a separate job and no other debt apart from the mortgage. Bill cannot pay his debts so he is reviewing Going Bankrupt. Michelle is bothered that she too may need to file for bankruptcy or be forced into it thanks to the house loan.

Within this particular case the trustee is required to access or get their hands on Bill’s part of the equity which is $50,000 less selling costs. They may do this in a few ways; 1. Make them sell the home. 2. Invite Michelle to buy Bills half of the equity. 3. leave them in the home – but It’s very unlikely with this case that the trustee would be happy to leave Bill and Michelle in the house because there is just too much equity.

So Michelle may be able to purchase Bill’s share of the equity by coming up with $50,000 and buying out Bills’ half and from that moment its now 100 % Michelle’s house.

Property and Going Bankrupt in Australia is confusing and demanding, 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 more about Going Bankrupt and houses feel free to consult with us here at Bankruptcy Experts on 1300 795 575, or go to our website: http://www.BankruptcyExperts.com.au.


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