Help please: Bankruptcy and saving my house

[smileyface]

Hi I hope someone can offer some advice or help regarding being able to keep my (2) properties while going bankrupt.

Specifics are:

Property 1: Loan is $150,000, Value is $220,000
Property 2: Loan is $400,000, Value is also $400,000

They are cross-collateralised with the same bank (CBA), so basically there's $70k equity across both of them, forgetting break fees, etc.

The titles are both in my name only.
The loans are both in my name only.

My wife however has enough cash to pay for my equity.

One trustee that I have spoken to said that in order to save the house and have my wife purchase the equity, I'd need to transfer the loan to her name, however I called the CBA (anonymously) and they said that

• transferring to my wife's name would basically be a sale and a refinance which together would cost me over $30k in break fees and stamp duty, and
• they have no problem with the loan staying in my name after I'm bankrupt as long as I can keep up with the mortgage payments (which I will be able to).

...so I'm not taking that trustee's word for it.

By the way, I've never had a problem paying my mortgages, been a perfect customer since the dollarmites... the bankruptcy relates to other debts.

I'd really love to know firstly, if there's anyone out there that has ever been in a similar situation, and secondly, where to go for help (preferrably in Brisbane).

The problem with searching the internet for help is that there are so many sites that give me that real dodgy debt-consolidation vibe and give the whole 1000-word emotional sell to get you to call them. So it's hard to find a website/company that I can trust.

Thank you in advance for anything at all you can respond with.

 

[Wunderbar]

Okay. First thing you need to understand is that if you transfer your house to your wife's name now - since you know about impending bankruptcy - your creditors can reverse the transaction during your bankruptcy and you will lose the house/s. So that option is pointless - it's called 'voidable preferences', your trustee should know this.

The bank isn't strictly right in this case - refinancing is not a sale of the house. One option is to refinance the loan (with another bank or CBA) in both your wife's and your name. The only problem with this strategy is the bank will require that the title be transferred to your wife's name, which involves a 'sale' of land, and hence stamp duty. And it may also be open to reversal via voidable preferences

The best way to do this is for your wife's relatives (like her father) to 'lend' you money via a 2nd mortgage on both houses for about $70k, and register his interest on the title. This means that when you go into bankruptcy, the bank gets paid out when the house is sold, but your wife's father is also paid out before the creditors because he has a mortgage on the house as well. Hence - creditors get nothing. You lose the house but at least you still retain the equity rather than giving it to creditors.

 

[Ausprop]

hang on wunderbar -isn't it only voidable if not conducted at fair market value? if the sale is done at a fair price then I thought it would be ok. then you have to do somethimg with the $40k.... like make it disappear by paying future expenses.

the loan from this uncle - the $70k would have to go somewhere to make it stand up.

 

[Wunderbar]

Well the 70k is easy to show - just say that you spent it on food/clothes/car whatever.

As for the transfer at market value:

(1) A transfer of property by a person who later becomes a bankrupt (the transferor ) to another person (the transferee ) is void against the trustee in the transferor's bankruptcy if:

(a) the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and

(b) the transferor's main purpose in making the transfer was:

(i) to prevent the transferred property from becoming divisible among the transferor's creditors; or

So price is irrelevant - it's all about the purpose.

 

[Ausprop]

ok, so a 2nd mortgage - in the unlikley event that the CBA would allow it - would be quite effective

 

[Wunderbar]

Well if his valuations are correct, then I don't see why they would refuse it. They get paid out first anyway so whether he has 10 mortgages or not has no bearing on their decision!

 

[Ausprop]

you would think so, but most banks have it as a term of their mortgage that you need their consent. This same issue caused me huge dramas a couple of years ago and without going into detail this stupidity by one of the big 4 cost me $170k

 

[Wunderbar]

Yeah I know I work for one of them so I realise how stupid they are

 

[Terryw]

Okay. First thing you need to understand is that if you transfer your house to your wife's name now - since you know about impending bankruptcy - your creditors can reverse the transaction during your bankruptcy and you will lose the house/s. So that option is pointless - it's called 'voidable preferences', your trustee should know this.
.

Hi Wunderbar.

This is not really correct.
It could be voidable if it was done:
- undervalue, s120 Bankruptcy Act
- to defeat creditors, s121 Bankruptcy Act

Assuming the wife has the funds it could be possible to transfer the properties to her name.

 

[Wunderbar]

Since he knows about his impending bankruptcy he obviously falls under s121. Which is why I said a transfer of title is pointless since it will be reversed anyway. Let's not forget the High Court case where the barrister's property transfer to his wife 20 years ago was reversed because he knew he hadn't paid tax to the ATO. So it is a very strong provision.

 

[Terryw]

The bank isn't strictly right in this case - refinancing is not a sale of the house. One option is to refinance the loan (with another bank or CBA) in both your wife's and your name. The only problem with this strategy is the bank will require that the title be transferred to your wife's name, which involves a 'sale' of land, and hence stamp duty. And it may also be open to reversal via voidable preferences

A refinance is a changing of loans from one lender to another. A transfer is a change in legal ownership. I think changing banks now would not provide any benefits as the equity in the properties will still be there and will be available to satisfy the judgment debt. Transferring the property, in part, to the wife may be possible, but she would have to pay market rates for her purchase and any funds released would be property available to the creditors.

 

[Wunderbar]

If he was to refinance with another bank - the purpose would be to extract as much equity as possible out of it to deny that money to the creditors. It's not to refinance for the sake of refinancing - that is pointless

 

[Terryw]

The best way to do this is for your wife's relatives (like her father) to 'lend' you money via a 2nd mortgage on both houses for about $70k, and register his interest on the title. This means that when you go into bankruptcy, the bank gets paid out when the house is sold, but your wife's father is also paid out before the creditors because he has a mortgage on the house as well. Hence - creditors get nothing. You lose the house but at least you still retain the equity rather than giving it to creditors.

I can't see how this would be of any benefit. If someone lends you money, then you have the money. It would only work if you spend the money and it was not available to creditors. But this is dangerous as the intent is to defeat creditors if there is not commercial reason to enter into such a loan agreement. It could be voidable under s37A of the conveyancing Act (NSW)
http://www.austlii.edu.au/au/legis/nsw/consol_act/ca1919141/s37a.html

 

[Wunderbar]

It is easy to justify it. Since he's going bankrupt for non-property reasons - he probably has a business. It is so easy to burn 70k cash in a business that is going south - everyone in business knows and expects this. Obviously you don't buy things that can be traced like property

 

[Terryw]

Since he knows about his impending bankruptcy he obviously falls under s121. Which is why I said a transfer of title is pointless since it will be reversed anyway. Let's not forget the High Court case where the barrister's property transfer to his wife 20 years ago was reversed because he knew he hadn't paid tax to the ATO. So it is a very strong provision.

Do you mean the Cummins case? I though it was determined that the wife was acting as trustee for the husband's 50% of the house.

This matter is different. If the wife were to purchase the house at market value it would be, probably, ok. The family would get to keep the price. The funds the wife paid to the husband would go to discharging the husband's mortgage to the bank and the rest would be available to creditors.

A few years ago one of my friends did exactly this. Her daughter purchased her mum's share of the house (mum owned it with hsuband) by paying market rates. A valuation was obtained to prove this. The family go to keep the family home. A few months later mum went bankrupt. The Trustee in Bankruptcy investigated and noted the transfer, but since every thing was above board nothing more came of it.

 

[Peter_Tersteeg]

A spouce and be added to or removed from a title without incuring stamp duty. We've had several clients do this in Victoria and WA recently with no problems.

 

[smileyface]

I think transferring title would be illegal (defeating creditors), so not looking at that option.

Wunderbar, why does it need to be my wife's relative that registers an interest? Why can't it just be my wife? She's the one with the cash.

The way I see it, the bankruptcy trustee shouldn't be interested in the houses at all, only the equity, so if someone comes along and pays him $70k instead, then why should he care what happens to the house/title/loan?

Then, whoever is paying that cash (in this case my wife) would register some kind of caveat or whatever it is on my properties.

Would that regristation of interest be a $ amount or a %? eg, would she own "$70k" of my property, or would she own 11.3% (70/620)?

p.s. thanks for all the replies, i really wasn't expecting so many so soon... will read them all in detail now.

 

[Wunderbar]

You see smileyface - if you really want to keep the house, and you are certain that your wife/family/friends have enough money to bail you out, then you can do a Part X arrangement. This means that you avoid bankruptcy as third parties will contribute and pay off some of the debt for you, and the creditors promise to leave you alone. For example, if you owe $500k, but you have only 70k net assets, offer them say 200k contributed by your wife to stop bankruptcy and 'do a deal'.

That way everybody wins - creditors get 200k (rather than only 70k), you keep the house and you avoid bankruptcy (although Part Xs are still on your credit history)

The reason why it can't be your wife registering an interest is because it becomes a related party transaction and it looks very dodgy....it's better if it's a bit more removed from you.

 

[smileyface]

If he was to refinance with another bank - the purpose would be to extract as much equity as possible out of it to deny that money to the creditors. It's not to refinance for the sake of refinancing - that is pointless

The purpose was actually just that the trustee said the loan would have to be in her name (which doesn't make sense to me).

It wasn't to defeat the creditors or transfer any assets to my wife.

(So yes, pointless in my view).

 

[Wunderbar]

If the loan is to be in her name, the title has to be in her name too. It's standard bank protocol because it's part of their responsible lending i.e. the person borrowing the money has to have an interest (i.e. ownership) of the property.