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CAN I KEEP MY HOUSE IF I GO BANKRUPT

Fact Sheet

by Clare Corrigan18.09.19

The short answer is possibly. Equity in real property in which you have a legal or beneficial interest vests in your Trustee in Bankruptcy and your Trustee will look to realise that equity for the benefit of your creditors during the course of your bankruptcy.


LEGAL INTEREST

A  legal  interest  in  property  is  typically evidenced  by  registration  on  the  property title  either  as  sole  owner  or  joint  owner with one or more other parties. The nature of the title will impact on the extent of the legal  interest  and  legal  advice  should  be sought to the extent that the legal right is uncertain. The  legal  interest  in  title  to  real  property would typically vest in the Trustee.

SELLING EQUITY

Once  the  equity  has  been  determined a  Trustee  would  typically  offer  to  sell the  equity  to  a  non-bankrupt  relative  or spouse. If this were to happen the trustee’s interest in the property would come to an end  and  provided  you  continued  to  meet your  obligations  to  the  mortgagee,  you would be able to retain the house subject to  the  legal  interest  of the non-bankrupt party that acquired the equity.

BENEFICIAL INTEREST

Even if you are not registered on title you may have an equitable or beneficial interest in real property that can be claimed by your Trustee. This would typically arise if you have contributed to  the  purchase  or  improvement  of  the  property  despite  not  being  named on  title.  Examples  would  include  paying  part  or  all  of  the  deposit,  contributing toward mortgage repayments or funding improvements to the property.

Once  again  this  can  be  a  complex  issue  and  determining  the  extent  of  beneficial  or equitable ownership that may be at risk would require a review of all of the facts of any individual situation and legal advice should be sought prior to declaring yourself bankrupt if you think that this may impact you.

JOINTLY OWNED

The  trustee  would  typically  offer  the  joint owner the option to purchase your equity in the jointly owned property. If your co-owner is  unable  or  unwilling  to  purchase  your equity, your trustee will ask the co-owner to join in the sale of the property and the net sale proceeds will be divided in proportion to the ownership interest.If your co-owner refuses to join in the sale process your trustee may apply to the court for an order of sale.

CAN THE TRUSTEE SELL MY PROPERTY AFTER I AM  DISCHARGED FROM BANKRUPTCY?

The equity in real property vests in your trustee for the term of your bankruptcy, typically three years, and if not dealt with at the time of your discharge would revest in your trustee.

The revesting period is normally a further six years from discharge but can be longer in certain circumstances. The risk to you is that whilst the value of your equity in real property may be minimal at the start of your bankruptcy, ongoing capital appreciation and servicing of the mortgage debt on the property during the term of your bankruptcy, and for up to six years after your discharge from bankruptcy, may create equity in the property that your trustee will look to realise for the benefit of your creditors.

As such it is essential to deal with any interest in real property early in your bankruptcy and to obtain proper advice as to your options.