Unfortunately, in bankruptcy, your home is not a protected asset. If you declare bankruptcy, your home and other property immediately vests with the trustee, and the trustee is required by law to realise any funds from the property by auctioning it.
However, there are many ways in which you can save your house, but these depend on the ownership structure of the property, the amount of equity in it, and how cooperative your bank is with respect to the mortgage.
- If your property is singly owned by you, without any mortgage on it, then the trustee has the full authority to sell you property.
- If the bankrupt (Eg. a husband) jointly owns the property with other co-owners in it (Eg. the wife), the trustee will give the other co-owners, the option to purchase the share of the bankrupt individual. The other co-owners can go ahead with this option, and thus the house can still be retained. If the other co-owners do not wish to exercise the option of re-purchase, then they may auction the house with the co-owner and get their portion of the sale proceeds, in proportion to their ownership in the property, and the share of the bankrupt, will be utilised by the trustee to settle the bankrupt’s debts.
- If the property is jointly owned and is under mortgage, then if the market value of the house exceeds the amount of loan repayable against it, then the trustee may then offer the solvent co-owners, the opportunity to buy the share of the bankrupt co-owner in such excess amount of market value of property over the loan repayable. If the solvent co-owners accept the offer, then the trustee can use the amount received towards settlement of the bankrupt’s debts and the co-owners now remaining, who have purchased the bankrupt’s share, are now required to fulfil the mortgage payments.
- In the above scenario, of the amount of loan repayable exceeds the market value of the property, it means that there is nil equity in the property. In such a case, the trustee can offer the solvent co-owners the opportunity to purchase the future rights in the property’s equity for a certain fee. With this, the solvent co-owners can protect the property from being realised by the trustee in the future.