How does a Trustee in Bankruptcy recover funds when a family home is involved?


How does a Trustee in Bankruptcy recover funds when a family home is involved?

The family home is frequently the subject of conflict between the Trustee and the bankrupt’s family. Very often the family home is the only asset that creditors will receive a dividend from. Conflict can make it difficult for the Trustee to quickly and efficiently recover funds from the property for the benefit of creditors.

When the family home is solely in the name of the bankrupt spouse, in bankruptcy the interest in the home transfers to the Trustee. Neither the bankrupt, the bankrupt’s spouse, or the bankrupt’s wider family has any right to continue to reside in the property. If there is equity in the property after accounting for mortgages and the costs of sale, the Trustee registers on the title and then sells the property to release the equity for the bankrupt estate. Usually, this is an uncontroversial and straightforward process.

However, often in bankruptcy one spouse is bankrupt and the other is not. Further, the bankrupt spouse and non-bankrupt spouse typically own the matrimonial home jointly.

So, what happens then?

The first outcome is that the joint tenancy in the house is severed with the interest of the bankrupt spouse vesting in the Trustee, with the remaining co-owner (being the non-bankrupt spouse) becoming a tenant-in-common.

The next step is that an experienced Trustee gives the non-bankrupt spouse the opportunity to purchase the equity in the half share vested in the bankrupt estate. However, what happens if the non-bankrupt spouse has insufficient savings, borrowing capacity, or income to purchase that share?

Normally a Trustee would then invite the non-bankrupt spouse to join the Trustee in a sale of the house, noting that the net proceeds are usually split on a 50/50 basis (because, in the case of a traditional matrimonial relationship, it is presumed that a couple intends each of them to have a one-half interest irrespective of the amount contributed by each to the purchase price or ongoing expenses of the home).

What if there is resistance? 

However, what occurs if the non-bankrupt spouse cannot (or will not) purchase the bankrupt estate’s share, is uncooperative with the Trustee, and does not consent to a joint sale? This is where it can become complex and dVT’s experience proves valuable.

In this circumstance, an experienced Trustee applies to the Court for a ‘partition and sale’ order under state property laws. The order appoints a ‘trustee for the sale of the property’ and directs that the whole property is sold with the separate interests of the non-bankrupt spouse and the Trustee being realised. From the gross sale proceeds, legitimate mortgages will be satisfied, and the costs of the sale paid. The balance is then divided between the non-bankrupt spouse and the Trustee. For example, Section 66G of the Conveyancing Act 1919 (NSW) enables orders to be made appointing trustees for the sale of property and division of the proceeds. It’s worth noting that the Trustee in Bankruptcy applies for the order after obtaining the consent of suitably qualified professionals (usually two) to be appointed as Trustees for Sale. The incumbent Trustee in Bankruptcy cannot be the Trustee for Sale.

Recently, dVT was successful in obtaining Section 66G orders which resulted in a good return for creditors whilst also providing a fair and equitable outcome for the bankrupt’s family.

This case study is summarised below:


Two brothers were the registered proprietors of a boarding house in Sydney’s Eastern suburbs and a café in Byron Bay NSW. One brother was bankrupt arising from his debt due to the deceased estate of their late father. For undisclosed reasons, the non-bankrupt brother was unwilling to join with the Trustee in Bankruptcy in a sale of the two properties. This resulted in the appointment of dVT as Trustees for Sale of the properties under Section 66G of the Conveyancing Act 1919 (NSW).

Trustees’ actions

Café in Byron Bay

The Trustees for Sale had to examine and understand commercial leases impacting the property and a Development Approval (DA) for the construction of a three-level commercial complex on the site. The Trustees also had to establish the market value of the property, appoint an appropriately qualified sales agent and effectively market the property for sale.

Further, the Trustees’ needed to instruct solicitors to prepare a brief to a tax barrister to provide advice in relation to GST and in particular whether the Trustees had to register for a new Australian Business Number (ABN), whether the registered proprietors’ joint ABN should/could be used in lieu, and to determine the treatment of GST on the sale of both properties. Counsel’s memorandum of advice directed the Trustees to apply for a private ruling from the Commissioner of Taxation and obtain an ABN and Tax File Number. The Trustees implemented Counsel’s advice.

Boarding House in the Eastern Suburbs

The Trustees had to examine and understand numerous short-term rental contracts and financial statements governing the 22 units comprising the boarding house. The Trustees also had to establish the market value of the property, appoint an appropriately qualified sales agent, and effectively market the property for sale.

Another significant issue that the Trustees had to consider and resolve was whether registering a strata plan for the property was possible, and if so, what additional value it would add to the property. After engaging appropriate experts, and making inquiries of the planning authorities, the Trustees determined that it was not possible to register a strata plan.


The Trustees were successful in selling both properties within a reasonable time and at the top end of the valuation ranges. This resulted in the bankrupt estate being paid out and the non-bankrupt brother receiving a significant payment. This enabled both brothers and their families to get on with their lives.

During the course of the investigation and sale process, the Trustees kept all stakeholders fully informed including issuing a number of detailed progress reports. All stakeholders were appreciative and considered it valuable.

This is an example of one circumstance, where dVT had the experience and resources necessary to achieve both a good result for creditors and be empathetic to the needs of the bankrupt and the bankrupt’s family.

Should you wish to talk to us about your particular circumstance in relation to recovering funds in the event of Bankruptcy,  please contact Mark Robinson on 02 9633 3333 or

dVT Group is a business advisory firm that specialises in business strategy, turnaround, forensic investigations and insolvency (both corporate and personal). 

Written by by Mark Robinson, Registered Trustee, dVT Group and Julia Kulagina, dVT Group