The most significant issue numerous people have with Bankruptcy is without a doubt ‘Will I manage to retain my home?’ and it might be complicated, but occasionally it is achievable.
The only reason where you will be obliged to sell your family house when you declare insolvency is if you have equity in the home so that it is thought as an asset. But how does this work? What is equity? How much equity makes it an asset? We receive the concerns frequently about Bankruptcy. So below are a few scenarios to show you how it all works and help you comprehend Bankruptcy. Remember if you want to know more regarding Bankruptcy and residential properties don’t hesitate to get in contact with us here at Bankruptcy Experts Northern Rovers on 1300 795 575, or check out our website: www.bankruptcyexpertsnorthernrivers.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 high, and life seemed good. However in recent years the work has dried up, prices have gone down and their debt has just kept increasing. Now they are having to take a look at Bankruptcy as a result of significant debts and home mortgage.
They purchased the home for $450,000, and they have $80,000 in other unpaid debts.
They really would like to keep their house but question if they could. They know that house prices, if anything, have gone down in the area in the last 5 years so to be safe they believe that their home is presently only worth $450,000 after all these years. To make sure they browsed www.realestate.com.au sold section of the site to see what other homes in the streets close by have sold for lately.
Over the past 5 years they have just been paying off the interest, so they currently owe the original $450,000.
Current House Value = $450,000.
Current Mortgage Value = $450,000.
Net Equity Value = $0.
As there is no equity within this particular property the trustee will not ask Tanya and Matt to sell their house when they declare bankruptcy, so long as they keep up the mortgage repayments then all will be well for them for the 3 years they are in personal bankruptcy.
At the end of the insolvency period of time the trustee will write to them and ask if they wish to take over ownership of their home again and provided that it has not grown in price over the 3 years they have been insolvent they will be asked to make an offer to get their house back. This is usually somewhere around $3,000 and $5,000 to pay for the legal expenses of changing the land title deed etc. This was a pretty simple 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 Northern Rivers 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.
Because of a recent business complication Bill is about $240,000 in debt. Michelle who does work in banking has a different job and no other personal debts apart from the mortgage. Bill can not pay his financial debts so he is taking a look at Bankruptcy. Michelle is worried that she too may need to file for insolvency or be driven into it due to the home loan.
In this specific situation the trustee is required to gain access to or get their hands on Bill’s half of the equity which is $50,000 less selling costs. They could accomplish this 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 very unlikely with this case that the trustee will be happy to leave Bill and Michelle in the house since there is just a lot of equity.
So Michelle may have the ability to purchase Bill’s percentage of the equity by coming up with $50,000 and buying out Bills’ half and from that time its now 100 % Michelle’s home.
Property and Bankruptcy in Australia is complex and tricky. These two examples above are just the tip of the iceberg as far as your options in Northern Rivers are concerned. If you should know much more about Bankruptcy and houses feel free to get in touch with us here at Bankruptcy Experts Northern Rovers on 1300 795 575, or check out our website: Bankruptcy Northernrivers