5/5/2019 Bankruptcy and the homeIs the home protected? No. What about joint ownership? The bankrupt and their non-bankrupt partner/spouse will own the home as ‘joint tenants’. When the bankrupt and a non-bankrupt co-owner jointly own the home, the trustee will have an interest on the bankrupt share. How is the equity in a property determined? The trustee will get the property valued to determine the equity. Secured debts (e.g. mortgages, etc.) are deducted from the property’s value and the bankrupt’s share of the equity is calculated. What if there is no equity in the property? When there is no equity in a property and the debts secured against the property are greater than the current property value, the lender may exercise their rights and sell the property. If lender don’t exercise their rights, the bankrupt and possibly other parties can continue to service the loan. It is also reasonable to expect the property’s value to increase. The property vests in the trustee at the time of bankruptcy and remains vested regardless of whether the trustee takes action to sell the property, or when there is no equity in the property. The property remains vested in the trustee when the bankrupt has been discharged from bankruptcy. The trustee will generally review the property’s equity position periodically. They can realise any equity generated after the date of bankruptcy, even if the equity has been generated by the continued mortgage repayments by the bankrupt or another owner. Mortgage repayments attributed to the bankrupt’s share are deemed to be rental payments to use and occupy the property. How are properties realised? Where the trustee is the only owner, they can put the property up for sale. Where there is a co-owner, the trustee will usually take the following approach:
What if the bankrupt can continue with mortgage repayments? If the bankrupt has the capacity to continue making mortgage repayments, usually the mortgagee will not insist upon possession of the property—preferring that the loan repayments continue. The trustee and bankrupt may negotiate payment for any equity in the property to the estate. This type of arrangement benefits everyone concerned: the bankrupt’s creditors benefit from the property’s equity in the estate; the mortgagee retains a performing loan; and the bankrupt’s family avoids losing their home. However, the trustee can sell the property at any time, even if the mortgage repayments are up-to-date. This means that the estate will benefit from the extra equity generated in the property from additional repayments. What about getting vacant possession? Normally, the trustee will need to provide vacant possession when selling a property. A trustee would not usually expect a bankrupt to vacate the property immediately upon bankruptcy; in normal circumstances a few weeks would be allowed for alternative arrangements to be made. In some cases, the trustee may allow the bankrupt to stay in residence during the selling period provided the bankrupt assists in that process, pays a fair rent, maintains the property, and provided the trustee is satisfied of the bankrupt’s continued cooperation in the bankruptcy process. How are the proceeds of sale distributed? If the property is wholly owned by the bankrupt, the estate will receive the entire surplus of the sale after any mortgagee and selling costs are paid. If the property is co-owned, the trustee will share the surplus with the co-owner (non-bankrupt) as per the legal entitlement on the title deed. |