Family law and Bankruptcy: the family home

Consider what happens when your partner is declared bankrupt.  The Trustee appointed by the court to the estate of your partner stands in the shoes of your partner and will take over the assets of your partner.  The Trustee will then sell the assets of your partner as the Bankrupt for the benefit of the creditors.

So how will this affect the family home?

There are various possibilities available:

1. The family home is registered solely in the name of your partner who is now bankrupt.

The Trustee will secure the property by lodging a caveat and transferring title in the property to the Trustee to enable the Trustee to sell it.

What can you do as the partner of the Bankrupt?

  • If you have contributed financially to the maintenance of the property such as by paying for renovations or rates or the mortgage then you may be able to claim an interest in the property and at least receive some of the proceeds of sale of the property, or
  • You may be able to purchase the property from the Trustee or the equity in the property, or
  • If you and the Bankrupt have separated then you may seek property orders in proceedings in the Family Court as to the family home.

2. The family home is registered in the joint names of you and the Bankrupt and you are not bankrupt

What are the options?

  • If you are able to borrow funds from the bank or from friends or family then you can pay out the debts of the Bankrupt and the costs of the bankruptcy and the bankruptcy will be annulled. Your partner is no longer bankrupt and will retain the interest in the family home.  The family home will not be sold by the Trustee, or
  • The Bankrupt may offer a compromise with creditors and the debts may be repaid in part or in full over a period of time and the family home will not be sold, or
  • You as a co owner or a member of your family or a friend may purchase the Bankrupt’s share in the family home from the Trustee, or
  • You as co owner and the Trustee may sell the family home and then distribute the proceeds of sale in accordance with the respective interests in the family home such as 50/50 or a different percentage dependent on the original ownership recorded on the title of the property, or
  • In the event that you and the Trustee are unable to reach an agreement as to the family home then the Trustee can then apply to the court seeking an order to sell the property. This is the least desirable option as costs will be incurred and this will reduce down the amount available for distribution.

3. The family home is held by the Bankrupt on trust for another person

Each situation will depend on the facts of the case.  Subject to careful scrutiny, generally such property is not available to be recovered by the Trustee and therefore the family home if falling into this category cannot be sold by the Trustee.

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