Easily 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 occasionally it is possible.
The only reason where you will be obliged 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 exactly how does this work? What is equity? How much equity makes it an asset? We get the questions frequently about Bankruptcy. So below are a few scenarios to show you how everything works and help you learn about Bankruptcy. Keep in mind if you want to know more regarding Bankruptcy and residential properties feel free to get in contact with us here at Bankruptcy Experts Newcastle on 1300 795 575, or check out our website: www.bankruptcyexpertsnewcastle.com.au
Case Study 1. (Tanya & Matt).
5 years ago Matt and Tanya purchased a house in a mining town, they moved there for their job throughout the mining boom therefore prices were high, and life seemed great. However in recent years the work has dried up, prices have gone down and their debt has just kept increasing. Now they are having to look at Bankruptcy as a result of substantial personal debts and home mortgage.
They purchased the home for $450,000, and they have $80,000 in additional debts.
They definitely would like to keep their home but wonder if they can. They know that house prices, if anything, have decreased in the region in the last 5 years so to be safe they believe that their home is presently only worth $450,000 after all these years. To make sure they researched www.realestate.com.au sold category of the site to see what various other homes in the streets close by have sold for most recently.
Over the past 5 years they have only 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 declare bankruptcy, 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 time period the trustee will contact them and inquire if they want to take over ownership of their home again and provided that it has not increased in price over the 3 years they have been insolvent they will be asked to make an offer to get their home back. This is usually somewhere around $3,000 and $5,000 to pay for the legal costs of modifying the land title deed etc. This was a fairly simple sample to demonstrate 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 Newcastle for $850,000. They tipped in $50,000 as a down payment 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 complication Bill is about $240,000 in debt. Michelle who does work in banking has a separate job and no other financial obligations besides the home mortgage. Bill can not pay his financial debts so he is taking a look at Bankruptcy. Michelle is concerned that she too may have to file for bankruptcy or be driven into it due to the home loan.
Here in this specific case 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 expenses. These professionals could do this in a couple of ways; 1. Have them sell off the home. 2. Invite Michelle to purchase Bills half of the equity. 3. leave them in the home – but it’s quite unlikely with this case that the trustee would be happy to leave Bill and Michelle in the house because there is just a lot of equity.
So Michelle might have the capability to purchase Bill’s percentage of the equity by coming up with $50,000 and buying out Bills’ half and from that time its now 100 % Michelle’s property.
Property and Bankruptcy in Australia is confusing and tricky. These two examples above are just the tip of the iceberg as far as your options in Newcastle are concerned. If you should know much more about Bankruptcy and residential properties feel free to contact us here at Bankruptcy Experts Newcastle on 1300 795 575, or take a look at our website: www.bankruptcyexpertsnewcastle.com.au.