CAN I KEEP MY HOUSE EVEN WHEN DECLARING BANKRUPTCY?
In many cases the answer is yes! In fact, in many cases nowadays we can help you keep your home. At Bankruptcy we are professionals at helping people keep their houses. It’s actually very tricky, so if you are concerned about losing your home call us on 1300 795 575 and we will guide you through your options.
The thought of losing the family house is probably the most common deterrent to people declaring bankruptcy. We chat with people daily who have wrestled for years under substantial financial strain so they don’t lose their home.
So how is it possible when declaring bankruptcy and keep your house? Easy, really; it’s a matter of equity. Let’s put it like this, if you own a home that’s worth $350,000 and you owe the bank $350,000 you in reality have no equity in the house, correct? The trustee will only sell your house if there is enough equity in the home if sold to repay a number of your debts. So in this particular scenario, the trustee will then offer you some choices, one of which is to simply to continue paying the mortgage and stay in the house while you are bankrupt.
So how can I learn the value of my home before I go through the process and pain of declaring bankruptcy? A basic way is to go onto realestate.com.au and look at the sold houses tab in the Melbourne area and it will show you all the recent sales in your location. Another possibility, if you are not sure or are very apprehensive, is to have a registered valuer do a valuation on your home, not a real estate agent (unless they are registered valuers, naturally). Be warned this will cost you somewhere between $300-700. Just another thing about house prices. If the trustee has to sell your house they do so reasonably quickly. It’s not a 6-month glossy marketing campaign and instead it’s typically by auction and they just meet the market on the day and that’s it. So when thinking about the value remember it’s a sell now price, not when the market improves.
Once you have worked out the market value of your house the next thing to look into is who owns the house.
Generally when our clients are declaring bankruptcy most home loans are between 2 people as joint tenants who both contribute to the home loan. If only one party is declaring bankruptcy then the equity is worked out this way.
Say your house is worth $400,000 and the current market value is $350,000. Then the balance of equity in the home is $50,000, right? Half of that total equity is automatically allocated to the party not declaring bankrupty, leaving $25,000 for the bankrupt. Out of that $25,000 the declaring bankruptcy party has to pay for all of the selling costs including advertising etc., which, depending upon where you live, can cost anywhere between $12,000-20,000. In this particular case say the selling expenses are going to be $15,000 then the remaining left over after the sale is $10,000. So in this case the trustee will give the non declaring bankruptcy party several options. One of which is common is for the bank to say, “Pay us the $10,000 and we won’t sell the house and you will have it eliminated as an asset from the bankrupt’s estate.” Or, in other words, work out a deal to pay the $10,000 and you can keep the house.
Just a side note: the financial institution who has given you the property loan will need the payments to be continued naturally. No matter what the trustee decides, if you don’t pay the financial institution the property loan they will eventually ask you to leave. So, in plain english, keeping your home obviously implies keeping the mortgage as well.
There are many more options with your house when declaring bankruptcy, and we have just outlined one option of potentially 20 alternatives you can decide on, when it comes to your house. We understand you will want to get this right. Gambling with the family home can be a devastating business. If you intend to get the appropriate advice about declaring bankruptcy or you just need to talk to someone give us a call on 1300 795 575.