Easily the most significant worry many have with Bankruptcy is without a doubt ‘Will I manage to keep my home?’ and it can be complicated, but in some cases it is achievable.
The only good reason where you will be obliged to sell your family home when you declare insolvency is if you have equity in the home so that it is thought as an asset. But exactly how does this work? What is equity? Just how much equity can make it an asset? We receive the inquiries all the time about Bankruptcy. So below are a few examples to demonstrate to you how all of it works and really help you comprehend Bankruptcy. Keep in mind if you wish to know more relating to Bankruptcy and houses don’t hesitate to get in touch with us here at Bankruptcy Melbourne on 1300 795 575, or check out our website: www.bankruptcymelbourne.com.au
Case Study 1. (Tanya & Matt)
5 years ago Matt and Tanya purchased a house in a mining town, they relocated there for their job throughout the mining boom therefore prices were higher, and life looked good. However recently the work has dried up, prices have gone down and their financial debt has just kept growing. Now they are needing to take a look at Bankruptcy as a result of substantial financial debts and home mortgage.
They bought the house for $450,000, and they have $80,000 in various other debts.
They really would like to keep their house but question if they could. They know that residential property prices, if anything, have decreased in the region in the last 5 years so to be safe they think that their house is presently only worth $450,000 after all these years. To make sure they researched www.realestate.com.au sold section of the website to see what various other properties in the streets nearby have sold for lately.
Over the past 5 years they have just 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.
As there is no equity in this particular property the trustee will not ask Tanya and Matt to sell their house when they go bankrupt, so long as they maintain the mortgage payments then all will be well for them for the 3 years they are in insolvency.
At the end of the bankruptcy period of time the trustee will write to them and ask if they want to take control of ownership of their property 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 have their house back. This is typically somewhere around $3,000 and $5,000 to pay for the legal expenses of modifying the land title deed etc. This was a pretty simple sample to show how a home 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 Melbourne 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.
Due to a recent business issue Bill is about $240,000 in the red. Michelle who does work in banking has a separate job and no other debt apart from the home mortgage. Bill can not pay his financial debts so he is having a look at Bankruptcy. Michelle is concerned that she too may need to file for bankruptcy or be driven into it because of the house loan.
Within this particular instance the trustee is required to gain access to or get their hands on Bill’s share 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. keep them in the house – but it’s quite improbable with this scenario that the trustee would be happy to keep Bill and Michelle in the house because there is simply too much equity.
So Michelle may have the ability to purchase Bill’s share of the equity by coming up with $50,000 and buying out Bills’ half and from that time its now 100 % Michelle’s house.
Property and Bankruptcy in Australia is confusing and complicated. These two case studies above are just the tip of the iceberg as far as your options in Melbourne are concerned. If you should know more about Bankruptcy and houses don’t hesitate to speak to us here at Bankruptcy Melbourne on 1300 795 575, or check out our website: Bankrupt Melbourne