The most significant issue numerous people have with Bankruptcy is without a doubt ‘Can I manage to keep my home?’ and it may be complicated, but sometimes it is possible.
The only good reason where you will be obliged to sell your family home when you declare insolvency 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 makes it an asset? We receive the concerns constantly about Bankruptcy. So here are a few instances to show you how it all works and help you understand Bankruptcy. Keep in mind if you want to know more relating to Bankruptcy and residential properties feel free to get in touch with us here at Bankruptcy Experts Parramatta on 1300 795 575, or check out our website: www.bankruptcyexpertsparramatta.com.au
Case Study 1. (Tanya & Matt).
5 years ago Matt and Tanya purchased a house in a mining town, they moved there for work throughout the mining boom therefore prices were higher, and life seemed good. However in recent years the work has dried up, prices have dropped and their financial debt has just kept increasing. Now they are needing to look at Bankruptcy as a result of substantial personal debts and mortgage.
They bought the home for $450,000, and they have $80,000 in additional unpaid debts.
They really want to keep their house but wonder if they can. They know that residential property prices, if anything, have dropped in the area in the last 5 years so to be safe they think that their home is currently only worth $450,000 after all these years. To make sure they browsed www.realestate.com.au sold category of the website to see what other properties in the streets nearby have sold for lately.
Over the past 5 years they have only been paying off the interest, so they still owe the initial $450,000.
Current House Value = $450,000.
Current Mortgage Value = $450,000.
Net Equity Value = $0.
Because there is no equity in this specific residential 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 remain in personal bankruptcy.
At the end of the insolvency amount of time the trustee will contact them and inquire if they wish to take control of ownership of their house 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 get their house back. This is typically somewhere between $3,000 and $5,000 to pay for the legal expenses of changing the land title deed etc. This was a pretty basic 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 suburb of Parramatta 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 issue Bill is about $240,000 in the red. Michelle who carries out work in banking has a different job and no other personal debts besides the home loan. Bill can not pay out his debts so he is taking a look at Bankruptcy. Michelle is worried that she too may have to file for insolvency or be driven into it as a result of the home loan.
In this particular 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 marketing costs. These professionals might do this in a few ways; 1. Have them sell the house. 2. Ask Michelle to buy Bills half of the equity. 3. keep them in the house – but it’s very improbable with this scenario that the trustee would be happy to keep Bill and Michelle in the home since there is just too much equity.
So Michelle may have the capacity 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 difficult to understand and complicated. These two examples above are just the tip of the iceberg as far as your options in Parramatta are concerned. If you need to know more about Bankruptcy and houses don’t hesitate to get in touch with us here at Bankruptcy Experts Parramatta on 1300 795 575, or check out our website: www.bankruptcyexpertsparramatta.com.au.