Bankruptcy and the family home – Part 2

This is the second part of an article in relation to how a trustee in Bankruptcy will deal with real property of a bankrupt, specifically the residential property owned by the bankrupt and a co-owner. If you missed the first part, please give the team at Condon Associates a call and we can provide you with a copy.

The bankrupt’s property is jointly owned and the co-owner is also bankrupt

The Bankrupt co-owners may either have the same trustee or a different trustee. If they both have the same trustee, the trustee effectively owns 100% of the property given that 50% vests with The Bankrupt Estate of X and 50% vests with The Bankrupt Estate of Y.  As such any third party wanting to obtain the relative bankrupts estates share will be required to fund a purchase of all the equity available.

If the third party makes an offer to the Trustee to purchase both Estate’s equitable interest in the property 50% of the funds would be payable to The Bankrupt Estate of X and the other 50% would be payable to The Bankrupt Estate of Y.

In the event there is no third party wishing to purchase the relevant estates interests, the bankrupt’s respective trustees can come to a mutually beneficial agreement as to selling the property on the open market.

Property owned by bankrupt with little/no net realisable equity

Trustee should lodge caveat against the title of the property to protect the Estate’s interest in the property. The trustee is not liable for rates and charges levied on the property.

Given the time limits the trustee has to deal with the property, the trustee will re-assess the equity of the property as the bankrupt reduces the mortgage balance or the property increases in value. A trustee would generally re-assess the equity of the property yearly.

It is important for the bankrupt to maintain their mortgage repayments. If the bankrupt falls behind on their mortgage repayments, the secured creditor can repossess and sell the bankrupt’s property even if there is no equity.

Once the property has been realised, the trustee should do the following:

  • Lodge a Withdrawal of Caveat; and
  • Issue a letter to the discharged bankrupt that “The Trustee makes no further claim to the property” if the bankrupt pays the agreed-upon current value of the net equity in the property.
  • In addition to the “no further claim” letter, a Deed can be prepared to formalise the transfer. The deed of transfer is not mandatory; if the bankrupt requests one, one can be prepared.

If there is sufficient net realisable equity in the property to warrant a sale

  • Before the property is being sold: no need for the trustee to be listed on the Title of the bankrupt’s property.
  • As the property is being sold by the trustee the Trustee is to be listed on the Title in their capacity as trustee.
  • If selling the property on the open market prepare a Contract for the Sale of Land.

Although the scenarios above are by no means exhaustive it is apparent that bankruptcy does have a large impact on the family home and it is important to carefully consider all the options before dealing with the property.