The most significant issue many have with Bankruptcy is without a doubt ‘Can I manage to retain my house?’ and it can be complicated, but sometimes it is possible.
The only good reason where you will be required to sell your family residence when you declare bankruptcy 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 can make it an asset? We get the questions frequently about Bankruptcy. So below are a few examples to demonstrate to you how all of it works and really help you understand Bankruptcy. Remember if you wish to know more concerning Bankruptcy and houses do not hesitate to get in contact with us here at Bankruptcy Experts Perth on 1300 795 575, or check out our website: www.bankruptcyexpertsperth.com.au
Case Study 1. (Tanya & Matt).
5 years ago Matt and Tanya bought a house in a mining town, they moved there for work during the mining boom and so prices were high, and life appeared good. Having said that in recent years the work has dried up, prices have dropped and their debt has just kept increasing. Now they are having to look at Bankruptcy because of significant financial obligations and mortgage.
They bought the house for $450,000, and they have $80,000 in additional debts.
They definitely would like to keep their house but question if they can. They know that residential property prices, if anything, have decreased in the area in the last 5 years so to be safe they believe that their home is currently only worth $450,000 after all these years. To make sure they searched www.realestate.com.au sold category of the website to see what various other houses in the streets close by have sold for most recently.
Over the past 5 years they have just been paying off the interest, so they still owe the original $450,000.
Current House Value = $450,000.
Current Mortgage Value = $450,000.
Net Equity Value = $0.
Because there is no equity within this particular property the trustee will not ask Tanya and Matt to sell their home when they go bankrupt, so long as they maintain the mortgage repayments then all will be fine for them for the 3 years they are in bankruptcy.
At the end of the insolvency amount of time the trustee will contact them and inquire if they want to take over 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 asked to make an offer to have their house back. This is typically somewhere around $3,000 and $5,000 to pay for the legal costs of modifying the land title deed etc. This was a pretty simple scenario 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 residential area of Perth 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 problem Bill is about $240,000 in the red. Michelle who does work in banking has a separate job and no other financial obligations 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 insolvency or be driven into it due to the house loan.
In this specific case the trustee is required to access or get their hands on Bill’s half of the equity which is $50,000 less selling costs. These professionals might accomplish this in a few ways; 1. Have them sell off the home. 2. Ask Michelle to buy Bills half of the equity. 3. leave them in the house – but it’s quite improbable with this case that the trustee would be happy to keep Bill and Michelle in the home as there is simply a lot of equity.
So Michelle may have the capability to buy Bill’s share of the equity by coming up with $50,000 and buying out Bills’ fifty percent and from that moment its now 100 % Michelle’s property.
Property and Bankruptcy in Australia is challenging and tricky. These two case studies above are just the tip of the iceberg as far as your options in Perth are concerned. If you need to know much more about Bankruptcy and residential properties don’t hesitate to get in touch with us here at Bankruptcy Experts Perth on 1300 795 575, or take a look at our website: www.bankruptcyexpertsperth.com.au.