Bankruptcy in Australia is a challenging procedure, but I realise from meeting with thousands dealing with the likelihood of bankruptcy for many years that the most terrifying element is the distress of losing the family residential property.
Nearly everyone is on an emotional level attached to their home – it’s where the children have grown, it’s where you sleep, eat, relax and built it from a house to a home. So it is terrifying to think that a thing like bankruptcy can sweep in and take all of that away from you.
So, Could you lose your home if you go bankrupt?
My answer is ‘possibly’– I realise it is not a practical response, but it will really depend on your unique instances. People generally think that losing your house is imminent and just an additional part of Bankruptcy– but don’t make yourself mad right now, as there might be hope.
So how does insolvency view my house?
The first thing to recognize is that properties are deemed assets– but no two houses will be the same. What you should grasp is that when it comes to Bankruptcy, they designate a trustee to oversee the procedure. Their task is to make certain that they can repay as many of your financial obligations with your asset. This is done via equity– and if there is no equity in your home then there certainly is no true advantage to selling it.
Trustees not selling residential properties is occurring considerably more since the GFC as house prices in many areas have been going south so what you paid 4 years ago may not automatically reflect the price these days.
However the most significant part with Australia and Bankruptcy is that you definitely need to get a professional to assist you through this process, there are lots of variables in these situations that should be considered.
For instance, if you have no equity in your home you need to take into account your bank loan. With loans, you are essentially just a client of the financial institution and they will similarly have a choice– will they want to get your house back, or do they prefer you to keep the loan? You may think that they would want to just take your home to avoid the risk, but frankly financial institutions are run as a business, and if these guys can leave you with a loan to keep making money off you, they generally will provided that you keep up to date with your monthly payments. But it is still up to the trustee to establish that there is lots of equity in your property the trustee will force you and the bank to sell the house.
What is my house worth?
Usually with Bankruptcy it is difficult to know what your house is really worth– yes, you may have an idea if you were selling your home, but the manner in which this is determined in personal bankruptcy is generally varied. When you declare bankruptcy you may need to note down the value of your home, and the amount that you owe– and you can work this out by utilizing a valuer. Doing this is going to be far more precise than using your ‘gut feel’ or a real estate agent. The other important factor is that you need to ask your valuer for two values– one for a Quick Sale, and one for a non-time sensitive sale. This will certainly give you 2 realistic numbers that can help you to properly value the property and understand its value even if you are being pressed to sell quickly.
When it comes to Bankruptcy and houses, another significant point to consider is ownership, in most cases homes are purchased in shared names. In other words a couple may have bought a house 50/50 making use of both salaries to make the payments. If one party declares insolvency and the other party does not, the equity is only factored on the 50 % of the residential property. With Bankruptcy, this is merely one of possibly numerous instances that are likely when it relates to the family home. Keep in mind the non-bankrupt party can buy the bankrupt’s part of the home in insolvency too. I must repeat this but get some guidance on this area of Bankruptcy since it is very tricky and every single situation is varied.
If you truly would like to find out more about what to do, where to turn and what questions to ask about Bankruptcy, then feel free to talk to Bankruptcy Experts on 1300 795 575, or visit our website: www.bankruptcyexpertshobart.com.au.