One of the major reasons people try to avoid bankruptcy is because it can mean losing your family home or other property assets you have. When you declare bankruptcy, you accept that your trustee will be selling the property to settle your debt. However, in some cases, you will still be able to live in the house.
What happens to your house depends on your ownership structure, the amount of equity you have in your property, and whether or not the mortgagee is willing to cooperate. Your house is not protected under the Bankruptcy Act, and your trustee will sell any equity in the property once the mortgage has been paid.
A Few Scenarios Based on Ownership and Equity
To figure out exactly what your options are, you should talk to a financial advisor from Revive.
You Own Your House Outright
If you do not have a mortgage, your trustee will help you sell your house at market value.
You Own Your House Outright, but There is Joint Ownership
If you and your partner have joint ownership of the house and the mortgage is paid when you declare bankruptcy, your partner can opt to buy out your share. If they are unable to, or choose not to, the house will be sold at market value and the proceeds split between the trustee and co-owner.
You Jointly Own the House, and It Has Low Equity
If you don’t have much equity in your house (perhaps because you recently purchased it, have been paying interest-only, or the property value has depreciated), the trustee will still sell whatever share of the equity you own. If your co-owner is able to buy your share out, you’ll be able to keep the house entirely under their name and they will continue to pay the mortgage on it.
You Jointly Own the House, and It Has No Equity
If your house is valued at less than your mortgage, your partner may be able to purchase the future equity intereston your portion of ownership. Because the trustee has no equity to sell, the co-owner of the house must continue to pay the mortgage and will own any future equity instead of you.
You Jointly Own the House, and It Was Used to Secure a Loan
Because you can use the existing equity in your home to take out another loan, your partner may be eligible for the doctrine of exoneration. If one of you took out a loan on your home that the other had no benefit from, say for a business venture, after the house has been sold, the equity realised would go to the co-owner who did not benefit from the loan.
This does not happen automatically and requires a trustee to verify the claim is valid. Learn more about bankruptcy and situations where your home can be saved, with a consultation from one of our experienced trustees. Call 1800 531 510 or submit an enquiry.