When you file for bankruptcy your assets and property are no longer yours to command. What happens to your home, for example, is a function of how much you owe on the unpaid mortgage as opposed to its market value. If the latter amount is greater than the former, the difference is your equity.

If your equity is in excess of the state or federal maximum, the bankruptcy trustee can sell your home to pay your debts. But with joint ownership it becomes somewhat more complicated. The complications have to do with:

  • how much equity each co-owner has in the property
  • how much of the equity is exempt from inclusion in the bankruptcy estate
  • under which Chapter of Bankruptcy you file — Chapter 7 or Chapter 13
  • whether the home is Common Law or Community Property

Filing Under Chapter 7

our homeUnder the rules of Chapter 7, even if your co-owner’s share of the home is not covered in the bankruptcy estate, the trustee could sell the property if:

  • your portion of the value is not exempt
  • the property cannot be divided for sale, and the benefit of the sale outweighs the harm to all the owners

If the bankruptcy court allows the trustee to sell your home, you and the co-owner(s) receive a share from the proceeds.

Filing Under Chapter 13

Chapter 13, unlike Chapter 7, is a payback, rather than a fresh-start, debt-liquidation plan. Under Chapter 13, you keep your share in the property pay back all or some of the outstanding debt. Chapter 13 is usually the only bankruptcy choice that will allow you to keep your home, especially if you are facing foreclosure.

States with Community Property Laws

If a married couple owns the home and the state is one of the nine community property states, both spouses are equal owners of the home in its entirety. This applies to nearly all assets accrued during the marriage, and, as such the home goes into the bankruptcy asset pool.

States with Common Law Property or Equitable Distribution Rules

Most states treat co-ownership interest in joint property as the individual’s separate property. If you file for separate bankruptcy, only your portion of the equity in the home becomes part of the bankruptcy estate. However, as mentioned above, the co-owner’s interests are not always protected.

So whether jointly owned or not, your home under Bankruptcy regulations is a vulnerable asset. If you have a low equity and your mortgage dates back far enough, chances are good that you’ll be able to keep it — unless you have fallen behind in your payments, which may have triggered the filing of bankruptcy in the first place.

Contact the trusted attorneys at Clark & Washington for more answers to your questions.

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