The benefits of increasing housing prices for Creditors

Under Section 129 of the Bankruptcy Act 1966 (“The Act”), any property or shares owned in real property by the Bankrupt vests in the Bankruptcy Trustee. If there is sufficient equity in the property, the Trustee has the power to sell the property in order to realise funds for the benefit of Creditors.

If the Trustee does not realise the Bankrupt’s property during the three-year bankruptcy period this will not in itself result in the property re-vesting in the Bankrupt. Section 129AA of the Act allows Trustees to realise property within a period ending six years after the discharge of a Bankrupt. This allows the Trustee to observe the changes in property market and make a determination as to whether it is viable to sell the property and what potential benefit it may have for Creditors.

Entering into Bankruptcy is usually the last resort for most Bankrupts. Therefore, real estate properties held by them usually have little or no equity otherwise as an alternative to Bankruptcy they would have been able to refinance their property.

However, over the last few years Australia has seen significant increases in housing prices. The housing boom started around November 2011 as the Reserve Bank of Australia began to decrease interest rates enticing more of the population to purchase properties.

The property boom has significantly improved the chances of Creditors receiving a distribution from Bankrupt Estates. This increase in housing prices has allowed Trustees to revaluate the equity positions of properties that are vested by them and properties that had no equity a few years ago may now have significantly increased in value allowing the Trustee to obtain a return for Creditors.