Yay, finally winter is behind us, so time for some to drop the coats, show some arms and don our vests. This article is not about that.
Houses, like a lot of other property in bankruptcy, vest in the bankruptcy trustee pursuant to section 58 of the Bankruptcy Act 1966. In other words, the (often a half) interest in real estate is “divisible amongst creditors” and more simply can be sold by the trustee.
There will be difficult scenarios – a non-bankrupt spouse, registered 50% owner on the title, they have rights too, six children under the age of 6 and elderly “vulnerable” parents also living under that roof… risks of Family Law challenges and a costly court application, it makes sense that most of these scenarios should be fertile ground for property settlements which see a payment toward house equity and the house left with the family.
From my experience, more than 99% of our bankrupts and their families have retained the family home by:
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- assisting our designated sales agent to undertake an obligation-free, free market appraisal of the property;
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- working through our calculation of equity including deductions for mortgages, caveats and selling costs; and
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- considering independent advice, documentation and coming up with a payment plan to close out the trustee’s claim.
Ideally and most commonly, these settlements occur early in the bankruptcy, but what of the other 1%?
Case 1
Five years in and no statement of affairs or in person meeting with the bankrupt, it was clear to us that she had a half interest in the family home with substantial/growing equity. Empty nesters with no family law issues apparent, so we obtained court orders for sale of the property and power to deal with a joint bank account.
Just before the Bailiff/Sheriff was due to be called in, we were able to sit down with the bankrupt and her husband, discuss the property background over a coffee which led to a timely lump sum settlement. Some legal muscle needed for this one to arguably marshal it into the 99% position above.
Case 2
Six years in. Property 100% in the name of the bankrupt, no co-owners, adult children. The court ordered sale of the property and when the bankrupt failed to vacate, the Sheriff facilitated vacant possession. Property will now be sold, anticipate creditors full payment including interest and a potential surplus back to the bankrupt after legal/trustee costs.
Case 3
Family were unable or unwilling to negotiate a settlement for house equity (initially “only” $2,000 that could have been paid over time). The three years of the bankruptcy passed, so discharged/released from bankruptcy, but the property was not. Updated market conditions indicated $40,000 in equity. A deal was done then and the price paid by the family substantially higher than it would have been earlier. The family have since more than tripled their available equity in the property, so money well spent.
Had a deal not been done, the property would have remained vested with the trustee until 6 years after the end of the bankruptcy and even longer – potentially 20 years or more if a claim has been made to the asset or notices were issued to extend the re-vesting period.
Our offices are always happy to confer in relation to these scenarios and to help facilitate the proper and fair operation of the legislation. Speak with an experienced insolvency accountant for guidance on property, vesting and bankruptcy matters.
Article by Malcom Field (Director) – Perth