Bankruptcy And The Family Home
Can I Keep My House
With No Equity?
Bob and Sue’s home is presently valued at $700,000 and the mortgage owing to the bank is also $700,000 meaning that they have no equity in their house. So, what will actually happen to Bob and Sue’s house now that they are going to declare bankruptcy?

House Has $30k or More in Equity
So, in New South Wales, what will happen to their house when they file for bankruptcy? In this case study we can consider the equity as anything above $30,000 so this would be the same scenario as if their equity was $30,000, $100,000, $300,000 or $1,000,000 it doesn’t make any difference the principle is the same.



House Is Owned By
One Partner?
In this case study Bob and Sue have been married for 15 years but their home is entirely in Sue’s name. Bob’s name is not on the title or on the mortgage but they have both resided in the property for the entire 15 years they have been together. Bob is needing to file for bankruptcy.
Surrendering the House to the Bank.
So, Bob and Sue decide to surrender their home to the bank. The very first thing we at Bankruptcy Experts Dubbo would do for them is get them to sign a legal document which resembles a deed of release meaning they have voluntarily surrendered their house.


Selling the House to a Family Member Prior to Bankruptcy, Is It Legal?



A Question of Caveats
Bob is a builder in NSW and has really been struggling due to the fact that he hurt his back. He owes $150,000 in unpaid accounts to a particular hardware store who have been very patient with Bob and are aware of his situation.



Names on House Titles



Big 5 Questions
– Is Going Bankrupt Right for me?
– Will I lose my job?
– How will my income be affected?
– Can I keep my house or car?
– Will I lose my business or can I still be self-employed?
If you are considering bankruptcy, being able to answer these questions is vital. Then you’ll know exactly what will happen to your business and assets should you choose to file for bankruptcy. Feel free to download our eBook for free and inform yourself today. Or, if your questions are more complex, call us directly on 1300 795 575.





Get your FREE copy of the Big 5
* We promise not to bombard you with emails and phone calls when you sign up for our free e-book. In fact, we promise to only call you once to see if we can help you further and that’s it.
When The House is in Your Partners Name and They Don’t Need to Go Bankrupt.


When the House Is In Your Name, You Need To Go Bankrupt And Your Partner Has Contributed To The House.
Bob owns a Dubbo home worth $700,000 he owes the bank $600,000 and as a result has $100,000 equity in the property. Bob now needs to go bankrupt and he’s really worried about losing his home when he declares bankruptcy, especially considering his partner Sue has actually been contributing financially towards mortgage payments for the last 5 years.



Why Would You Go Bankrupt If You Had Equity In Your House?



Can I Sell My House To A Family Member Before I Go Bankrupt ?
Let us say Bob and Sue own a property worth $700,000 and they owe $650,000 on the mortgage. They desperately wish to hang on to the Dubbo property as it has some nostalgic value and some practical implications as Sue’s grandmother lives in a granny flat out the back and their disabled child requires the wheelchair access installed at the property.
But I Have Mortgage Insurance?


What If My Partner Wants To Buy My Share of the Property When I go Bankrupt?
Bob and Sue need to know if there is any way when Bob goes bankrupt that Sue can potentially buy out Bob’s interest in the property and keep their home.



I Have Heard My Property Can Be Tied Up for Eight Years or More When I Go Bankrupt?



What If I Can Not Keep Paying the Mortgage Halfway Through My Bankruptcy ?
What If I Decide to Hand the House Back to the Bank When I Go Bankrupt, How Long Do I Have Before I Am Required to Leave?


Surely I Can Keep
The Family Home If I Go Bankrupt?
Sadly in lots of bankruptcy situations, as we have seen in these case studies, keeping your house is not an easy process. Sometimes it is simply not possible. Keeping your home in bankruptcy is all about the money, it is not about the sentimental value, emotional value or your own specific circumstances it is an extremely cut and dry procedure.
What If My House Was Purchased With an Inheritance?
The question is, if Sue puts her inheritance money toward their property, is that money safe if Bob and Sue decide they need to apply for bankruptcy?


I Bought a House With Compensation Money, Is That Money Safe If I Go Bankrupt?


Will I Still Have to Pay Rates, Insurance and Body Corp If I Go Bankrupt?
On the day they declare bankruptcy Bob and Sue will no longer continue to be the owners of their home.
Can I Keep My House with No Equity?
Bob and Sue’s home is presently valued at $700,000 and the mortgage owing to the bank is also $700,000 meaning that they have no equity in their house. So, what will actually happen to Bob and Sue’s house now that they are going to declare bankruptcy?
On filing for bankruptcy, Bob and Sue will put all the details about their mortgage and house value in the required documentation when they lodge the bankruptcy application. A few weeks after they have declared bankruptcy the trustee will write them a letter to ask them to potentially verify the market value of the property. This is to make sure that it is crystal clear whether there is actually any equity in the house. This generally will happen within the first month of bankruptcy.
When the value of the property has been determined Bob and Sue have a couple of choices. The first choice when bankrupt is that they can walk away from their property and no longer be required to pay the mortgage. Walking away is something they do not have to necessarily decide straight away when they declare bankruptcy, it can be reviewed down the track. If the mortgage gets too much and they find that they simply can’t keep it up, at this moment they can still hand the house back to the bank and walk away. In either case since they are bankrupt when the property is sold by the bank, they will not be liable for any shortfall from the sale.
The second option they have if they have no equity in their home, is to keep it. If they choose to keep their house while bankrupt because they really love it and it is where they have raised their family, then they can just continue to pay the mortgage, rates, insurances and the maintenance of the property. This will allow them to keep their house for the three years they are bankrupt. At the end of the bankruptcy period the house will be revalued. If for example, the house market value, of $700,000, has not increased in the three years they are bankrupt, then the trustee can offer the house title back to Bob and Sue. There will be some fees to cover the costs to transfer the title and some legal requirements which usually come to less than $5000. On payment to the trustee of these fees the house will go back into the names of Bob and Sue and they will continue to keep their property after their bankruptcy.
However, as another example, let us just assume that over the three years bankruptcy Bob and Sue’s home has increased in value by $100,000. Now the house is worth $800,000 however the mortgage owing is still basically $700,000. What will now happen is the trustee will say to Bob and Sue if you would like to keep your house you can, but you will need to pay your bankrupt estate the $100,000 dollars equity that has been gained in the property over that three years and then you can continue to keep the house. Let us just change that $100,000 increase in value and say that their house has only increased by $30,000 in equity since they went bankrupt, in this case they simply pay the $30,000 to the trustee and ultimately the creditors, then they get to keep their home.
Bob and Sue at the end of their 3 year bankruptcy period do still have the opportunity to walk away from the house if they decide they don’t wish to live there anymore. They can simply hand the house back to the bank and the bankrupt estate. When Bob and Sue’s bankruptcy has been finalised their home will then either be put back into their names if they wish to keep it or sold should they want to walk away.
Remember Bob and Sue can keep their house while they’re bankrupt as long as there is no equity in it at the time they begin their bankruptcy and that they settle any increase in equity during the bankruptcy. By continuing to pay the mortgage, rates and insurances, settling any additional equity, paying legal and transfer costs and a fee to the trustee they will keep their house.
If you wish to know more about going bankrupt in New South Wales and keeping your house feel free to call us here at Bankruptcy Experts Dubbo on 1300 795 575
Will I Still Have to Pay Rates, Insurance and Body Corp If I Go Bankrupt?
On the day they declare bankruptcy Bob and Sue will no longer continue to be the owners of their home. The bankruptcy trustee will generally remove Bob and Sue’s names from the title and put the trustee’s name in their place, then the house is just handed back to the bank. Even if Bob and Sue had outstanding rates of $8,000 owing at the time of bankruptcy they will now not have to pay them and any overdue household debts will not impact them handing the house back to the bank.
Should Bob and Sue choose to keep the property after declaring bankruptcy that is a completely different matter. If they remain on in their house they will still be liable for any body corporate costs, rates, insurances, and any other costs related to home ownership.
If you are not too sure exactly where you stand with your rates or other household expenses when going bankrupt, do not hesitate to call us here at Bankruptcy Experts Dubbo on 1300 795 575 for well-informed and relevant advice.
I Bought a House With Compensation Money, Is That Money Safe If I Go Bankrupt?
Before we explore this any further, when it comes to bankruptcy any compensation payments in either a lump sum or as weekly payments are very complicated. Our advice in this circumstance is to make sure you get some accurate advice before you declare bankruptcy. Don’t just take what we say here as gospel because there are a lot of variables in this very tricky situation.
After his accident at work Bob received $200,000 in compensation, he put the total $200,000 towards his house which is worth $700,000, he and Sue now only owe the bank $500,000 Bob and Sue have decided to apply for bankruptcy and there is effectively $200,000 equity in the property.
In NSW compensation money received as a result of an accident is generally considered safe and protected when you apply for bankruptcy. In this situation Bob’s compensation money that he put towards the house is safe despite the fact that he has actually declared bankruptcy. Bob and Sue can continue to keep the $200,000 which has become equity in their house, whether they choose to sell the house or remain living in it. The money Bob has as a result of his compensation payments is safe. This does not always apply with compensation money, sometimes if you receive compensation due, for instance, to a health problem it can be quite complicated.
If you are considering declaring bankruptcy in New South Wales, before you do anything give us a call here at Bankruptcy Experts Dubbo on 1300 795 575 for expert help and guidance.
What If My House Was Purchased With an Inheritance?
The question is, if Sue puts her inheritance money toward their property, is that money safe if Bob and Sue decide they need to apply for bankruptcy? In NSW the answer to that question is no, it is not safe at all. Inheritances and inheritance money received prior to bankruptcy are still looked at as assets and as such are still exposed to the bankruptcy trustee. The trustee can take any asset of yours as a part of your bankruptcy estate, so do not assume that any inheritance or inheritance funds are safe when you declare bankruptcy, they are not.
To find out more about inheritance moneys and how they, and other assets, are affected by bankruptcy, call Bankruptcy Experts Dubbo on 1300 795 575.
Selling the House to a Family Member Prior to Bankruptcy, Is It Legal?
Let us say that Bob and Sue’s house is worth $700,000 and they owe the bank $600,000. They decide to sell the property to Bob’s uncle Joe for $600,000, thinking that will clear their mortgage debt and Uncle Joe gets a good deal. The problem here is the bankruptcy trustee will ask what the value of the property was when they sold it. Bob and Sue will tell them it was worth $700,000 and the trustee will tell them that they should have sold it to Uncle Joe for the full $700,000. In this scenario the bankruptcy trustee will instruct Uncle Joe to pay the bankruptcy estate the $100,000 discount that he believed he had saved purchasing Bob and Sue’s property. To safeguard themselves from the possibility of selling their house too cheaply before they went bankrupt, Bob and Sue really should have had an independent valuation done on the property before it was sold. They should also have made sure that the transaction was done correctly using a solicitor or conveyancer to help them with the sale. If you are considering selling your house to a member of the family prior to bankruptcy do not try anything tricky, keep it a strictly commercial transaction the same as if you were selling to a complete stranger.
These are just the basics of selling a home to a relative prior to going bankrupt. This process is usually much more complex, so if you want to know more feel free to call us here at Bankruptcy Experts Dubbo on 1300 795 575.
Surely We Can Keep Our Family Home When I Go Bankrupt?
Sadly in lots of bankruptcy situations, as we have seen in these case studies, keeping your house is not an easy process. Sometimes it is simply not possible. Keeping your home in bankruptcy is all about the money, it is not about the sentimental value, emotional value or your own specific circumstances it is an extremely cut and dry procedure. When you are bankrupt if there is equity in your property the equity needs to be realised so creditors get paid some or all of what you owe them. That is how bankruptcy operates in NSW, no matter what your circumstances, if you have a house that you have equity in then it is under threat when you go bankrupt.
If you need some guidance about your family house or anything to do with bankruptcy do not hesitate to call us here at Bankruptcy Experts Dubbo on 1300 795 575. We will walk you through all your bankruptcy options and what you can do with your house.
What If I Decide to Hand the House Back to the Bank When I Go Bankrupt, How Long Do I Have Before I Am Required to Leave?
The good news is, it is not as quick as you may think. Every situation is different depending upon the banks, the bankruptcy trustee and the individuals but generally Bob and Sue do not need to panic, they will not need to be out the next week or anything ridiculous like that. Leaving your house is normally quite a sensible process and sometimes the bank might even ask you to remain in the property to help them sell it.
In this type of situation, if Bob and Sue are up to date on their mortgage they will usually have about two or three months to vacate. If Bob and Sue were really way behind on their mortgage repayments then the bank will most likely want them out sooner rather than later. In either case, once they go bankrupt Bob and Sue will have time to find and move into a new place to live.
If you are worried that you are going to lose your house because of bankruptcy call us at Bankruptcy Experts Dubbo on 1300 795 575 and we can guide you through your options.
What If I Can Not Keep Paying the Mortgage Halfway Through My Bankruptcy?
It truly is that easy, remember in bankruptcy Bob and Sue are both already bankrupt so simply handing the house back even if the bank makes a loss when they sell is not Bob or Sue’s problem. This is the one get out of jail free card you get in life if you can’t afford to pay your mortgage.
There is a lot more involved in this situation of course so if would like more information on what you might need to do in this bankruptcy scenario, give Bankruptcy Experts Dubbo a call on 1300 795 575.
I Have Heard My Property Can Be Tied Up for Eight Years or More When I Go Bankrupt?
If you keep a property, it is standard to have it revalued when you reach the end of your bankruptcy. In Bob and Sue’s case their home was revalued and it had increased in value from $700,000 to $780,000. In order to have the property released back to them they would be required to pay the trustee $80,000 which is the equity that the house has actually increased by over the three years of bankruptcy. The trustee will now continue to keep ownership of the property until Bob and Sue have done one of two things. One, they can choose to sell the property as it is now worth more than when they originally declared bankruptcy. Two, Bob and Sue have the option to find $80,000, pay it to the trustee and once it is paid have the house back. However, finding $80,000 is difficult, especially when you have been bankrupt, it could take Bob and Sue two or three years to come up with $80,000. In this situation the trustee would continue to keep the house in the trustee’s name past the 3 year period of bankruptcy, this enables Bob and Sue to pay off the $80,000 gain in equity and so keep their home.
In New South Wales there are a lot of other reasons that a trustee might continue to keep the house locked into the bankruptcy process beyond the 3 years but essentially it all boils down to money like most things in bankruptcy you just have to follow the money.
Believe it or not it is very easy to have your home tied up in the bankruptcy procedure for a number of years well after your release from bankruptcy. If you have a home in NSW and want advice on how you might be able to keep your property in bankruptcy, call us at Bankruptcy Experts Dubbo on 1300 795 575. We can help you work through what your options are and how you can best avoid any complications.
But I Have Mortgage Insurance?
Fast forward a few years and Bob and Sue are in financial difficulty and need to declare bankruptcy, what is even worse is that the Dubbo house is now worth $150,000 less than what their mortgage is. Bob and Sue are not really concerned about the mortgage due to the fact that they had paid for mortgage insurance. The sad fact is the mortgage insurance is not there to help safeguard Bob and Sue from any shortfall if the house sells for less than the mortgage, it is actually there to protect the bank’s interests. In this scenario, the bank will hand any financial shortfall to the mortgage insurance providers if the house sells for less than the value of the mortgage. The mortgage insurance provider will then pursue Bob and Sue for the shortfall.
The reason Bob and Sue were required to pay mortgage insurance way-back when they got the mortgage was because they could only come up with a 5% deposit which exposes the bank to higher risk, meaning the mortgage insurance company will require a greater premium. The banks hand down this additional premium expense to the purchaser, which is what Bob and Sue were paying for. In a nutshell, mortgage insurance is not there for you it is there for the bank.
At Bankruptcy Experts Dubbo we can help you navigate through the minefield of bankruptcy, call us on 1300 795 575 to take the first step.
Why Would You Go Bankrupt If You Had Equity in Your House?
Despite the fact that they have a reasonable amount of equity in their home Bob and Sue feel they will need to declare bankruptcy as they cannot draw on any of that equity to pay their other debts. Bob up until recently had been the main income earner in their relationship but, unfortunately, he has lost his job. Since Bob is now out of work and Sue does not have a very high income their ability to make repayments has been seriously impacted. In this situation the bank will not agree to let them borrow against the equity they have in their house.
Another hurdle Bob and Sue have come across has been though they have been struggling to pay back debts to a variety of different creditors, there have been some defaults and judgements on their credit report. Once their credit rating dropped it became harder to borrow money to cover their various debts. This unfortunate scenario can become a vicious circle which can be tough to get out of without contemplating bankruptcy.
If Bob and Sue only had $18,000 worth of debt and $100,000 equity in the house it is highly likely that their application for bankruptcy would be declined simply because they have lots of equity in their house.
If you own a home in NSW and are thinking about bankruptcy you can access some totally free advice by contacting us here at Bankruptcy Experts Dubbo on 1300 795 575 and we can walk you through your options.
When the House is in Your Name, You Need to go Bankrupt and Your Partner has Contributed to the House.
Bob owns a Dubbo home worth $700,000 he owes the bank $600,000 and as a result has $100,000 equity in the property. Bob now needs to go bankrupt and he’s really worried about losing his home when he declares bankruptcy, especially considering his partner Sue has actually been contributing financially towards mortgage payments for the last 5 years. In New South Wales the technical term for this scenario is called the doctrine of exoneration. What does it mean? Put simply, it means that a person who has financially contributed to a property despite the fact that they are not on the title or mortgage has some claim against the equity in the property should the person who owns the house declare bankruptcy.
In this first case, Sue had actually sold a property before she got together with Bob and she contributed $30,000 towards the deposit of a home for them to live in. At the time Sue was not working so the property title and mortgage was only put in Bob’s name. Unfortunately things didn’t work out for Bob and he had to apply for bankruptcy. Despite the fact that it is only Bob’s name on the title and the mortgage of their home, Sue has a legitimate claim to get her $30,000 back. Sue can make a claim to the trustee for her $30,000 to be returned if the property needs to be sold. If Bob and Sue wish to hang onto the property Sue’s claim to the $30,000 of equity means Bob now only has $70,000 of equity and not $100,000, potentially making keeping their house a lot more feasible.
In this next scenario Sue can again have a claim against some of the equity in Bob’s house should he go bankrupt. If Sue has actually paid 50% of the mortgage over the past five years she will be entitled to a portion of any equity in the property. Even if the title and mortgage for the house is only in Bob’s name.
Should Bob file for bankruptcy, potentially Sue has the ability to claim some of the equity in Bob’s house if they have combined their financial lives. If over the five years they have lived together they have shared equally all the household expenses and costs then Sue is entitled to some of the equity in Bob’s home, despite not being on the title. This can even apply if Sue has not specifically made payments towards the mortgage.
Another manner in which Sue might claim some equitable interest in the property is because her name is on the mortgage. When Bob and Sue purchased the house they put the title in Bob’s name only as Sue had a very risky profession at the time and was worried about legal claims against her. However, in order to secure the mortgage for the house both Bob and Sue were listed on the mortgage as they required both their incomes to contribute to buying the property. Even though she is not on the title as an owner of the house because she is on the mortgage she is entitled to a percentage of the equity should Bob file as bankrupt.
Sue received a redundancy payout a couple of years ago and contributed $40,000 towards some renovations, new carpet, paint and new bathrooms in the house she resided in with Bob. Although Bob owned the house and had always made all the mortgage payments when he was required to declare bankruptcy Sue was able to claim $40,000 equity in the house when it needed to be sold.
As you can see from these case studies, in NSW, there are a variety of ways in which a partner can have a claim to equity in a bankrupt partner’s property. Should you be facing bankruptcy and not know where you or your partner stand Bankruptcy Experts Dubbo can give you the answers and guide you through the process. Call us on 1300 795 575 to find out how we can help.
When the House is in Your Partners Name, and They Don’t Need to Go Bankrupt.
A common misconception in New South Wales is that if the title of the house you live in is in your partner’s name then the house will be safe if you go bankrupt, however, it is not that simple. This is a scenario where it is really about following the money or establishing what money has contributed to the property and whose money that is.
Let us say for instance that before Bob and Sue purchased their property they now live in, Bob owned a little apartment in the city. Bob made a tidy sum of $50,000 when he sold his apartment and he added that towards a deposit for the house he lives in now with Sue. Although the new property is clearly Sue’s with just her name on the title and the mortgage he has still contributed $50,000. What this will mean is that if Bob goes bankrupt the trustee will ask if he has actually contributed any money towards the property at any point and as he has in this case the trustee might require that to be paid back towards his debts.
Another scenario could be that for the last five years Bob and Sue have lived in this property Bob has been paying half of the mortgage each month. Even though the property is only in Sue’s name, contributing to the mortgage means that Bob has actually assisted in the ownership of the house. By making regular or lump sum payments to a home loan Bob can be seen to be contributing toward the asset and unintentionally the house also becomes partly Bob’s asset, despite the fact that he is not on the title.
It can get even more complicated than that, let us say that our couple Bob and Sue have been residing in Sue’s home for the last five years and have contributed equally to the household bills. They both share equally in paying the mortgage, rates, purchasing food and sharing the cost of household items that need to be purchased. In this case the trustee will most likely say that because they have actually shared their financial lives together for the last 5 years a part of the equity in Sue’s property is in fact Bob’s.
A few years ago the whole back patio of the house that is in Sue’s name was rotted out and needed to be changed. Bob had some money from a redundancy payout from his job so he decided to not only pay for the patio renovations but to also do some of the work himself. By doing this the bankruptcy trustee can again consider Bob to now have some level of equity in Sue’s home.
Another case where Bob may be in trouble is if his name is on the mortgage because the bank would not lend Sue the money unless they both signed due to her capacity to make repayments. Despite Bob not putting any money towards the deposit, his name is on the mortgage because he earns money that will help contribute to making the repayments. In this scenario it is quite easy for the bankruptcy trustee to see that the house is in both Bob and Sue’s names and both have actually contributed toward the property and therefore towards any equity in the property. It could be that up to 50% of the equity in the house is classified as Bob’s.
If you are in a scenario where you reside in a property owned by your partner and have approaching bankruptcy concerns give us a call for valuable guidance. These case studies are by no means the entire story, there are a great deal of other situations that need to be considered and getting the appropriate information is essential. By giving Bankruptcy Experts Dubbo a call here on 1300 795 575 to find out how we can help.
Names on House Titles
The question is, will this action protect their property in any way when Sue files for bankruptcy? In short, the answer is no; they cannot merely just transfer the name of the title and then magically have a new owner appear. The main reason why this is not possible is that Sue needs to disclose any gifts or transfers of property when she declares bankruptcy. When the trustee sees this transfer they will simply say that Sue has done this purely to defeat creditors or to not pay her bills when she declared bankruptcy. This strategy won’t work in NSW and it actually is just a waste of time.
We described in a previous case study, a couple who had been residing together in a property for a great length of time entering bankruptcy with only one partner’s name on the house title. As shown in that scenario, even if your name is not on the title you might well be liable for some of the equity in that property. So, names on titles do have a purpose when dealing with bankruptcy but they are definitely not a guarantee of security for your asset. Bankruptcy is really just a matter of following the money, it is about equity asset value and who has actually paid what over what period of time. These sort of numbers and these sorts of calculations are more the philosophy behind how assets are determined when you go bankrupt rather than just names on titles or mortgages.
If you wish to know more about titles of property and how bankruptcy will impact it, do not hesitate to call us here at Bankruptcy Experts Dubbo on 1300 795 575 and we will walk you through it. Do not assume that you have it all covered this is a very complicated area of bankruptcy law and you can easily get it wrong.
A Question of Caveats.
Bob is a builder in NSW and has really been struggling due to the fact that he hurt his back. He owes $150,000 in unpaid accounts to a particular hardware store who have been very patient with Bob and are aware of his situation. However, they are just unable to wait anymore, so to make certain that they get their payment for the account they have placed a caveat over Bob and Sue’s property.
Generally, as a mortgage holder you will be notified from your creditor that a caveat has been put on your property and you might also be contacted by the land titles office. What this means for Bob and Sue now is if they sell their property for $700,000 and they still owe the bank $500,000 the caveat for $150,000 will now enter into effect. Effectively the maths from the sale of their home will be, they pay the bank $500,000 mortgage, then pay the hardware store the $150,000 caveat leaving Bob and Sue with $50,000.
What happens to a caveat when you go bankrupt? Well the reality is not too much, although Bob and Sue are not required to pay the hardware store as a result of going bankrupt this does not automatically get rid of the caveat. So, what needs to take place is Bob and Sue need to go through the process of the bankruptcy and at the end of the 3 years the debt for the hardware outlet will be removed and they will no longer owe the hardware store the $150,000. They can then request the hardware outlet to remove the caveat as this does not automatically happen. If they will not Bob and Sue may need to get some legal advice to force them to do so.
This is, of course, a very simple explanation of how caveats operate in New South Wales, there is a lot more to it than we have briefly outlined. This example is not legal advice, it is simply just an example of how caveats work. Please feel free to seek your own independent legal advice about caveats if you have one on one of your properties because it is a very important issue and there are often complications.
There are various circumstances and scenarios that can be considered when it comes to a caveat, if you want to know more about them and how they can affect bankruptcy feel free to call us here at Bankruptcy Experts Dubbo any time on 1300 795 575.
Selling the House to a Family Member Prior to Bankruptcy, Is It Legal?
Let us say that Bob and Sue’s house is worth $700,000 and they owe the bank $600,000. They decide to sell the property to Bob’s uncle Joe for $600,000, thinking that will clear their mortgage debt and Uncle Joe gets a good deal. The problem here is the bankruptcy trustee will ask what the value of the property was when they sold it. Bob and Sue will tell them it was worth $700,000 and the trustee will tell them that they should have sold it to Uncle Joe for the full $700,000. In this scenario the bankruptcy trustee will instruct Uncle Joe to pay the bankruptcy estate the $100,000 discount that he believed he had saved purchasing Bob and Sue’s property. To safeguard themselves from the possibility of selling their house too cheaply before they went bankrupt, Bob and Sue really should have had an independent valuation done on the property before it was sold. They should also have made sure that the transaction was done correctly using a solicitor or conveyancer to help them with the sale. If you are considering selling your house to a member of the family prior to bankruptcy do not try anything tricky, keep it a strictly commercial transaction the same as if you were selling to a complete stranger.
These are just the basics of selling a home to a relative prior to going bankrupt. This process is usually much more complex, so if you want to know more feel free to call us here at Bankruptcy Experts Dubbo on 1300 795 575.
House Has $30k Or More In Equity.
So, in New South Wales, what will happen to their house when they file for bankruptcy? In this case study we can consider the equity as anything above $30,000 so this would be the same scenario as if their equity was $30,000, $100,000, $300,000 or $1,000,000 it doesn’t make any difference the principle is the same.
Bob and Sue have made a decision they desperately want to keep their house despite the fact that it has some equity in it. When Bob and Sue initially filed for bankruptcy they owed $300,000 in debt to banks, credit cards, tax and a whole range of different creditors. For Bob and Sue to keep their house in bankruptcy there are two options. The first option is to simply pay the trustee at the start of bankruptcy a lump sum of $30,000 to make up for the shortfall in between the house value and the house mortgage. To do this they would need to get the $30,000 from a friend, relative or somebody else because as a bankrupt they do not have any money. Paying the trustee $30,000 at the beginning of the bankruptcy will settle and satisfy the creditors that they have gotten the value of the equity out of the property and everybody is happy.
The second option if they do not have access to $30,000, they can as bankrupts enter into a payment plan with the trustee, paying off the $30,000 over the three year duration of their bankruptcy. At the end of their bankruptcy providing of course the house has not increased in value and their equity is still not more than that $30,000 the creditors will be satisfied and they can retain their home.
This payment arrangement does not automatically happen if you have some equity in your property and you apply for bankruptcy. Bankruptcy in NSW is a complicated complex process that you need to be really careful entering in to, especially if you wish to keep a family home in which you have some equity.
If you would like to keep your home in bankruptcy you can get sound professional guidance from us here at Bankruptcy Experts Dubbo. Call us on 1300 795 575and we can walk you through your options.
House is Owned by One Partner.
In this case study Bob and Sue have been married for 15 years but their home is entirely in Sue’s name. Bob’s name is not on the title or on the mortgage but they have both resided in the property for the entire 15 years they have been together. Bob is needing to file for bankruptcy.
In this particular circumstance it is most likely that the trustee will view some of the equity in the property as Bob’s although he’s not on the title or mortgage. The reason for this is simply because they have both contributed to household expenses and have been living together financially for the last 15 years. Although not necessarily documented on paper Bob has actually contributed to the maintenance of the house while living together in it.
So, Bob and Sue have lived together in Sue’s house for 15 years and the property is worth $700,000. The bank is still owed $500,000 so Sue has $200,000 equity in the property. In this scenario the trustee might well say that of the $200,000 equity half of that or $100,000 is in fact Bob’s because they have both lived there for 15 years. This is the worst case scenario. If it can be clearly established that Sue has contributed solely to the mortgage and household costs and Bob has not, it demonstrates a genuine imbalance. In this case it can be established that the equity in the house is not half and half although Bob has lived there for 15 years he potentially only has 10% or 20% of calculated equity. This is not locked in stone. This is something that needs to be worked out and is determined at the time of bankruptcy.
If, for example, Bob had just moved in with Sue six months earlier and she had owned the house for many years prior to their relationship and him moving in, this would be dealt with very differently. The simple reason being that there is not much history of them both living in the same property. In this situation it is quite likely that Sue will be able to keep full equity in the house and there will be no problems at all.
Please don’t automatically presume at any point that because your partner’s name is on the title and mortgage that your home is safe, that is not always the case. In NSW establishing equity in a property needs to be proven rather than through simply taking your word for it. Things like mortgage statements, bank statements, payslips and other documentation may be required.
Here at Bankruptcy Experts Dubbo we have the experience to walk you through establishing your property equity, call us on 1300 795 575 so we can assist you through the process.
Surrendering the House to the Bank.
So, Bob and Sue decide to surrender their home to the bank. The very first thing we at Bankruptcy Experts Dubbo would do for them is get them to sign a legal document which resembles a deed of release meaning they have voluntarily surrendered their house. This means the bank does not need to pursue legal action to have them removed from the house. Bob and Sue would then vacate the property, although sometimes the bank might ask the residents to remain and live in the property to help them in selling it.
The reality is the bank that lent Bob and Sue the money for the house are not concerned whether they declare bankruptcy or not. The bank will always get their money for the property because they have the loan secured against the property or another comparable asset and can potentially sell it at any point to get the money. In Bob and Sue’s case their home is sold and it ends up that it sells for $150,000 less than their mortgage, the bank will then ask Bob and Sue to pay the $150,000 shortfall. If Bob and Sue are bankrupt the $150,000 then simply goes onto their bankruptcy paperwork, this does not need to happen prior to declaring bankruptcy or at the start of bankruptcy in fact it can take place any time throughout the three years. In some cases, properties might take a year or two to sell so this process will just happen as a part of the bankruptcy process. If the housing market is really bad and the property does not sell then it is still not Bob and Sue’s problem, even after the 3 years of bankruptcy the problem is still the banks and they will deal with the asset or the house whenever they can.
In New South Wales when you surrender your home to the bank there is an incorrect presumption with some mortgage holders that as they have actually paid for mortgage insurance this will somehow protect them from any shortfall if the bank sells the house. This is absolutely not the case, in fact mortgage insurance is not there for you as the mortgage holder it is there for the bank to secure its mortgage. If you fail to pay your mortgage the bank will simply hand over to the mortgage insurer and the bank will get its money for the house. Once the house is sold the mortgage insurer will then come after you for any shortfall. The only time you can have your mortgage wiped out is once you are bankrupt and the house is sold making the debt unsecured.
The minute Bob and Sue surrender their property to the bank or to the bankruptcy trustee whether they are in bankruptcy or not they will no longer be responsible for the rates or the maintenance or the upkeep or even the insurances on that property. They are basically no longer the owners of the property and can just walk away.
If you wish to declare bankruptcy in NSW and are worried about what will happen if you walk away from your house, feel free to call us here at Bankruptcy Experts Dubbo on 1300 795 575 and we will take you through your options.
Can I Sell My House to a Family Member Before I Go Bankrupt?
Let us say Bob and Sue own a property worth $700,000 and they owe $650,000 on the mortgage. They desperately wish to hang on to the Dubbo property as it has some nostalgic value and some practical implications as Sue’s grandmother lives in a granny flat out the back and their disabled child requires the wheelchair access installed at the property.
The question is can they sell the property to Granny to keep the property so that they can stay on there as tenants after bankruptcy? In New South Wales the short answer to this question is yes, if done in the correct way.
Our couple, Bob and Sue, decide to cover their mortgage commitment and at the same time look after Granny giving her a bargain, selling her the house for $650,000. They know full well that it is actually worth $700,000 and that they are selling their home to Sue’s grandmother for less than market rate. In this scenario the sale might become a huge problem for Bob and Sue. They have essentially avoided paying their creditors $50,000 of equity that the creditors should have been given if the property was sold at a reasonable market rate. To protect themselves against this mistake Bob and Sue should have had a registered real estate valuer assess their property to figure out the true market value, prior to selling to Sue’s grandmother at that established amount.
So, as you can see in this circumstance the issue was not that they sold the house to a member of the family, the problem was that they sold it to a relative at less than market value.
In this situation another trap that Bob and Sue could easily fall into is attempting to transfer the title of the house prior to bankruptcy. Let us say that Bob and Sue desperately want to keep their house, however, Sue’s grandmother is on a pension, has no savings and no capacity to borrow any money. As Granny is not able to buy the property from them Bob and Sue decide to transfer the ownership or the title to Sue’s grandmother before they go bankrupt hoping that this will safeguard them from losing their home. This situation is considered the same as if Bob and Sue gifted the property to Granny, it does not work simply changing whose name is on the title in bankruptcy, it is about following the money. In bankruptcy simply changing the ownership title on a home or property will do nothing to safeguard it from being sold as an asset.
If it appears like you might be heading towards bankruptcy and you have questions about your house, give Bankruptcy Experts Dubbo a call on 1300 795 575 for all the answers.