Losing your house: How much do you know about Bankruptcy in Canberra?

The greatest concern a lot of people have when they come to our business about Bankruptcy is simply 'Can I manage to keep my house?' and sometimes the answer is yes, you can keep your house.

The only reason you may be driven to sell your family home if you file for bankruptcy is because you have so much equity in the home that it is regarded as an asset. Please go over these basic hypothetical case studies below to get your head around Bankruptcy and how it has an effect on houses in Australia. Remember If you need to know more regarding Bankruptcy and houses feel free to contact us here at Bankruptcy Advice Canberra on 1300 879 867, or check out our website: www.bankruptcy-advice.com.au/Canberra.com.au

Case Study 1. (Mike & Sue Smith).

5 years ago Mike and Sue purchased a house in a mining town for $450,000. At this time the mining boom was helping keep all the property prices nice and high. Now they are needing to look at Bankruptcy considering they have massive debts of $80,000 on top of their mortgage and credit card and tax debt.

They really wish to keep their house but wonder if they can, they know that house prices if anything have gone down in the area in the last 5 years so to be safe they think that their house is currently only worth $450,000 after all these years, to make sure they searched www.realestate.com.au/ sold section of the website to see what other houses in the streets nearby have sold for recently.

Having said that they have not paid any principal of the home loan over the last 5 years, mainly just interest, so they still owe $450,000.

Current House Value = $450,000.

Current Mortgage Value = $450,000.

Net Equity Value = $0.

Because there is no equity in this particular property the trustee will not ask Mike and Sue to sell their house when they go bankrupt, as long as they keep up the mortgage payments then all will be well for them for the 3 years they are in bankruptcy.

At the end of the bankruptcy period the trustee will write to them and ask if they would like to take over ownership of their house again and so long as it has not increased 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 between $3,000 and $5,000 to cover the legal costs of modifying the land title deed etc.

Now let's look at a slightly different example of Bankruptcy and houses.

Case Study 2. (Bill & Michelle Johnson).

2 years ago Bill and Michelle purchased a townhouse in a wonderful suburb of Canberra 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.

As a result of a recent business downfall Bill is about $240,000 in debt. Michelle who works in banking has a separate job and no other debt except for the mortgage. Bill cannot pay his debts therefore he is looking into Bankruptcy. Michelle is worried that she too may need to file for bankruptcy or be obliged into it due to the house loan.

Within this particular case the trustee is required to access or get their hands on Bill's part of the equity which is $50,000 less selling costs. They can do this in a few ways; 1. Make them sell the home. 2. Invite Michelle to buy Bills half of the equity. 3. leave them in the home - but It's very unlikely in this case that the trustee would be happy to leave Bill and Michelle in the house because there is just 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 moment its now 100 % Michelle's house.

Property and Bankruptcy in Australia is confusing and demanding, these two case studies above are just the tip of the iceberg as far as your options in Canberra are concerned. If you need to know more about Bankruptcy and houses feel free to get in touch with us here at Bankruptcy Advice Canberra on 1300 879 867, or visit our website: www.bankruptcy-advice.com.au/Canberra.com.au.