Wednesday, January 11, 2017

Bankruptcy in Australia - Will I lose my house if I go bankrupt?

Bankruptcy Australia is a challenging process, but I know from meeting with thousands facing the prospect of bankruptcy over the years, that very little troubles people more than the notion of losing the family house. Almost every person is on an emotional level connected to their home - it's where the kids have grown, it's where you appreciate life on a day to day basis.


Will you lose your home if you go bankrupt? The response is a resounding maybe. (not very useful, I know) People typically feel that it's an inevitable consequence and a part of Bankruptcy, and consequently push themselves to the brink of insanity to not lose the family home. But when it comes to the whole process of Bankruptcy, a key perk of Debt Agreements and Personal Insolvency Agreements is you can keep your house. The reason is simple: you've accepted 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 guideline behind the Bankruptcy process as administered by the trustee, then you'll have a more clear picture.

The function of the bankruptcy trustee is to firstly abide by the regulation of the bankruptcy act 1966 (it's a very dry read about 600 pages if you are eager).

Within that regulatory framework, the trustee is to help recover monies owed to your creditors, that is carried out in a bunch of distinct ways but it mainly comes down to income and assets. The trustees role is to collect payments beyond your income threshold. The further role is to sell off any assets that can contribute to paying back your debts.

What this resembles is that yes the trustee will sell your house right? Not normally. 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 in your home then it's pointless to sell your home. This is happening increasingly since the GFC as house prices in many areas have been heading south so what you paid 4 years ago may not necessarily reflect the price today.

A quick word of advice here if you have a house in Australia and are looking at Bankruptcy: get a skilled professional to help you through this process, there are lots of variables in these scenarios that should be considered.

You might wonder, why would the bank want bankrupt clients? wouldn't they need to sell your house and not take the risk? The bank that has nicely lent you the money for your house is making good money every month in interest out of you, month in month out, provided that you keep up to date with your repayments then the bank really wants you in there at all costs. Ultimately however it's not the bank's call if the trustee establishes that there is plenty 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 make a note of the value of your house and the quantity 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 arrive at this figure. When you get a valuer out to your home, make sure 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 give 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 let them know you need to sell your home in the next 30 days you may control the result. The idea is that you want a life-like 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 set up your equity position. Secondly, your home may be really worth a lot more than you thought. Get some tips before carrying this out. The number of times I've met with clients that have sold their family home of 20 years simply to discover I could of helped them keep it; unfortunately this happens all too often

When it concerns Bankruptcy and houses, another serious consideration is ownership, often houses are purchased in joint names. In other words 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 comes down to Bankruptcy, this is just one of potentially numerous scenarios that are likely when it comes down to the family home. Bear in mind the non-bankrupt party can buy the bankrupt's portion of the home in bankruptcy also. I should repeat this but get some guidance on this area of Bankruptcy because it is very tricky and every case is different.


If you need to learn more about what to do, where to turn and what questions to ask about Bankruptcy, then feel free to contact Bankruptcy Australia on 1300 795 575, or visit our website: www.bankruptcy-australia.net.au