How is the family home affected in Bankruptcy?
By Administrator 13 July, 2015
If you have become bankrupt or contemplating bankruptcy the family home may become seriously affected if careful planning isn’t done.
What Happens in Bankruptcy?
The bankrupt’s interest in the property vests with the Trustee in Bankruptcy by operation of the Bankruptcy Act. What this means is that the bankrupt can no longer deal with the property in any way and the Trustee in Bankruptcy has full control over the property. Therefore if the property is 50% owned by the bankrupt, then that 50% interest vests in the Trustee in Bankruptcy and it is the role of the Trustee in Bankruptcy to realise that 50% interest.
Who Can the Trustee in Bankruptcy Sell the Interest to?
If the property is jointly owned (i.e. the bankrupt owns 50% and the non-bankrupt spouse owns the other 50% interest), then the Trustee in Bankruptcy can offer the bankrupt’s 50% interest to the non-bankrupt’s spouse. The Trustee in Bankruptcy will typically obtain a valuation for the property to determine the value of the interest in the property.
It is common place for a Trustee in Bankruptcy to sell the bankrupt’s interest in the property to the non-bankrupt spouse. The advantages of this approach are as follows:
- It avoids the unnecessary stress of a forced sale of the matrimonial home in bankruptcy; and
- The bankrupt estate will usually receive a higher return if the usual selling costs can be avoided (i.e. agent’s fees).
If the non-bankrupt spouse cannot reach agreement with the Trustee in Bankruptcy to acquire the equity in the property, the Trustee in Bankruptcy may elect to take the following steps:
- Apply to the court for a Trustee for sale to be appointed under the Conveyancing Act to sell the house; or
- Issue a notice under Section 129AA of the Bankruptcy Act and take formal steps to realize the equity in the property at some later stage.
What to do Next?
If you or your spouse are contemplating bankruptcy and jointly own a matrimonial home, then call us today on 1800 676 598 to discuss your options. Bankruptcy is a very specialised area and you should only speak to a Registered Trustee in Bankruptcy who can help put in sale a fully legal sale which may save your house from a forced sale.
All calls are free, entirely confidential and if required, anonymous.