Some good news from a bankruptcy!
I recently had the rare pleasure of surprising a bankrupt with a cheque for more than $50,000 being a surplus in her estate after paying her creditors in full. It was a delightful reward for a single mum who struggled through some tough financial times and can now get on with her life free of unmanageable debt and with a healthy bank account for the first time in more than a decade. Her creditors were also pleasantly surprised with a full payment from a bankruptcy.
This remarkable result is an example of the dual purposes of the Bankruptcy Act being wholly satisfied; an equitable return for creditors and a financial rehabilitation for the debtor. The debtor getting some money for her fresh financial start was an added and welcome bonus in this case.
It can be attributed to a combination of factors including:
- hard work and persistence from the debtor in paying her mortgage through a period when the western Sydney property market moved favourably for her and her creditors
- a patient and commercial mortgagee, HSBC Bank Australia
- careful administration and guidance as the bankruptcy trustee
It was certainly not all plain sailing. There were a number of times in the past 7 years when the mortgage fell into arrears and a forced sale may have precluded the result. But somehow she was able to earn sufficient income to look after her children and bring the mortgage up to date so the property could be sold in an improved market. HSBC’s commercially prudent and patient approach in working with the mortgagee paid dividends for all stakeholders.
When the debtor filed for bankruptcy in 2009, she was behind on the mortgage, had other debts totalling more than 5 times her annual income and the value of her house in Western Sydney had dropped below the amount owing to the bank. No equity at all. She was a new property owner when the Global Financial Crisis hit, a single mum with infant kids. Not only did the GFC devalue her house but it also presented her with the extra challenge of maintaining a job and income to pay the mortgage. At that time, there would have been losses for the mortgagee and creditors if the property was put to a forced sale. Worse than that, she would have struggled to house and accommodate herself and her children.
Instead of throwing her hands in the air and walking away leaving the debts, the debtor made the tough decision to try and maintain the mortgage to keep a roof over their heads. She did this knowing that she would have to repay all of her accumulated debts before she would see any of the equity in the property herself from the mortgage payments she struggled to meet.
In the years following she worked hard to stay on top of the mortgage. By the time the property market bounced she was still not in a practical position to enable us to sell because she did not have enough money for alternate housing so we could give a buyer vacant possession. I was able to arrange finance to pay her removalist costs, a bond and some prepaid rent to help facilitate an orderly move to a suitable house nearby. This was greatly appreciated because her infant children were now teenagers in the midst of their schooling.
Whilst there was an element of good fortune in the property appreciation, it was certainly a case of the harder she worked, the luckier she got and so did her creditors. She worked away the red-ink from her balance sheet and ended up with some nice change for herself too. This is a rare good news story out of the ashes of the GFC!