Can I keep my house if I declare bankruptcy?

One of the biggest fears for individuals facing financial distress is the loss of the family home. In the Australian bankruptcy system, real estate is considered a divisible asset, meaning it can be sold to pay your creditors.

1. The Role of the Bankruptcy Trustee

When you are declared bankrupt, your legal and equitable interest in any real estate vests in (transfers to) your Bankruptcy Trustee. The Trustee’s job is to realize the value of that interest for the benefit of your creditors.

2. Scenarios Where You Might Stay

There are three main ways you might keep your home:

A. The “Nil Equity” Scenario

If the value of the house is less than the amount you owe the bank (negative equity), the Trustee may decide not to sell it immediately, as there would be no money left for creditors after the bank is paid. You can stay in the house as long as you keep up with the mortgage payments.

B. Third-Party Buy-Back

A common solution is for a non-bankrupt third party (often a spouse, partner, or family member) to purchase your share of the equity from the Trustee at market value. This requires a formal valuation and a sale contract, but it keeps the property in the family.

C. Low Equity

If the equity is very low, the Trustee may agree to “wait and see” for a few years. However, if the property value increases significantly during your 3-year bankruptcy period, the Trustee can step in and sell.

3. Joint Ownership and “Severance”

If you own a home with a spouse who is NOT bankrupt:

1. The Trustee only owns your share (usually 50%).
2. The Trustee and your spouse become “tenants in common.”
3. The Trustee can apply to the Court for an order to force the sale of the whole house (unless the spouse buys the Trustee’s share).

4. Protected Assets (What you ALWAYS keep)

While you may lose your house, bankruptcy law protects essential items, including:¹

• Ordinary household furniture and effects.
• Tools of trade (up to a certain value).
• A vehicle (up to a certain value) used primarily for transport.
• Superannuation (in most cases).

Related Topics

• Bankruptcy vs Liquidation
• Statutory Demands
• Commercial Law Practice Area

Explore Your Options

Bankruptcy is not the only solution. You may be eligible for a Debt Agreement (Part IX) or a Personal Insolvency Agreement (Part X) which might allow you to protect your home.

Facing debt? Contact Bell & Senior today for a confidential strategy session. Call (07) 5532 8777.