What happens to your house in a Bankruptcy?

The first question everyone has when considering bankruptcy is what will happen to my home. That depends on both how your estate is handled and who owns your family home.

Your real property form part of your Bankrupt Estate and must be realised by your Trustee. However, if possible we will realise your real property in such a manner that allows your family to keep and stay in your family home. The two most common methods are:-

Example 1 – Jane and Stuart

Stuart runs a plumbing business but due to unforeseen circumstances he has large outstanding debts that he cannot pay and has to go bankrupt.

Jane and Stuart both jointly own their home with a mortgage on it. The home is worth $500,000 with $450,000 owing on the mortgage. Therefore the equity or value in the property for Stuarts’ creditors (the people Stuart owes money to) is $50,000. As the property is jointly held, Stuart’s creditors only have access to half of that amount.

We will look at selling the property to Jane for approximately half this amount placing the property entirely in her name (pending bank approval and stamp duty).

Example 2 – Mary

Mary is a successful policewoman, however, illness and helping family members have left her in crippling debt with no choice but bankruptcy.

Mary owns a home worth $315,000 with $300,000 owed to the mortgagee. We would look at doing a Deed of Forbearance with Mary where instead of creditors selling the property and likely getting very little return after the costs of sale are included. Mary would pay $15,000 back to her Bankrupt Estate in return the for Trustee of the Bankrupt Estate to agree to not sell the property for the entirety of the time the property is vested in the Bankrupt Estate 3 years of bankruptcy and 6 years after that.

The property then remains as Mary’s and eventually legal title returns to her.

If possible, we will work out a way to both ensure creditors receive what they are entitled to and keep you in your family home.

Feel free to call us on (02) 8488 3126 for an obligation free confidential discussion on Bankruptcy and how it will work for you.

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