Selling Your Home during Bankruptcy in Australia: The Process Explained

At the Bankruptcy Advisory Centre, we always try to find ways to help our clients raise all the required assets needed to service their debts without selling their homes. Working with many clients over the years, we understand the human element and always aim to give the best advice in cases where a family home might need to be sold. Fortunately, there are ways to use the legal framework to prevent you from selling your home in bankruptcy.

However, there are times when it is best to sell the house to raise assets and capital, so in this article, we will provide a comprehensive explanation of the process of selling your home during bankruptcy in Australia so you understand the steps involved in navigating this process.

Bankruptcy and Your Home

Bankruptcy in Australia is governed by the Bankruptcy Act 1966 and is designed to provide a fresh financial start for debtors while ensuring that creditors receive a fair share of what is owed to them. When it comes to your home, several important considerations must be considered during the bankruptcy process. Our expert team at the Bankruptcy Advisory Centre can review all the details with you to ensure you make an informed decision.

Equity in Your Home

Equity in your home refers to the value of your home minus any outstanding mortgages or secured debts. If your home has significant equity, it may be subject to sale as part of the bankruptcy process to repay creditors.

Exemptions

Certain assets, including your primary residence, may be exempt from sale in bankruptcy. These exemptions are designed to ensure that you have a place to live during and after bankruptcy. However, the rules governing these exemptions vary, and the law makes it clear that all assets and liabilities need to be accounted for, but it also makes provision for all considerations to be fair.

Trustee’s Role

Once you are declared bankrupt, a trustee will be appointed to manage your bankruptcy, and their role includes assessing your assets, including your home, and determining whether it should be sold to repay creditors. The bankruptcy process aims to ensure all liabilities are paid via an equal distribution of assets the trustee has raised.

The Process of Selling Your Home During Bankruptcy

Let’s explore the step-by-step process of selling your home during bankruptcy in Australia:

• Consult with Your Trustee: If you have significant equity in your home, it is advisable to consult with your appointed trustee. They will assess your financial situation and determine whether selling your home is necessary to meet your obligations to creditors.
• Valuation of the Property: An independent valuation of your home will be conducted to determine its current market value. This valuation is crucial in determining the potential proceeds from the sale. Your trustee will carry this out on your behalf.
• Equity Assessment: The trustee will calculate the equity in your home by subtracting any outstanding mortgage or secured debts from the valuation. If there is substantial equity, the trustee may recommend selling the property to generate funds for creditors, but other options are available.
• Exemptions Review: The trustee will also review whether your home qualifies for any exemptions under the bankruptcy laws. Exemptions can protect your home from being sold in bankruptcy, but their applicability varies.
• Decision to Sell: Based on the equity assessment, exemptions, and your financial situation, the trustee will decide the sale of your home. They will proceed with the necessary legal steps to sell the property. At the Bankruptcy Advisory Centre, we understand that this is not always the most straightforward situation, especially if the house in question is jointly owned or has a lot of sentimental value to the family. We understand this and will always approach any sale of assets with the greatest care and the sensitivity it deserves.
• Real Estate Agent Selection: If your home is to be sold, the trustee may engage a real estate agent to list and market the property. The goal is to achieve the highest possible sale price to benefit creditors and clear as much of your debt as possible.
• Sale Process: The sale of your home will follow the standard real estate sale process, including inspections, negotiations, and a settlement period. Proceeds from the sale will then be held in trust by your trustee and then distributed to creditors in accordance with the Bankruptcy Act.

Alternative Arrangements

In some cases, alternative arrangements may be considered, such as selling your share of the property to your partner or a family member. If the property is jointly owned, only your portion of the property will be assessed, and your partner or spouse can purchase your share of ownership. You may also wish to explore the option to buy back the property after bankruptcy if permitted by the trustee and bankruptcy laws.

Selling your home during bankruptcy in Australia is a complex process that requires careful consideration of your financial circumstances, equity in your home, and applicable exemptions.

At the Bankruptcy Advisory Centre, we will work closely with you as your appointed trustee so you understand your rights and options throughout this challenging process. While bankruptcy is designed to provide debt relief, it does involve the sale of assets, including your home, to meet your obligations to creditors.