Are you filing bankruptcy, and you aren’t sure what will happen to a property with joint ownership? How does your individual bankruptcy affect your joint properties?
Factors That Determine How Joint Property is Handled in Bankruptcy:
- State Property Laws
- Identity of the Co-Owner
- Possible Exemptions
- Type of Bankruptcy
When You File Bankruptcy Property Becomes Property of the Bankruptcy Estate
When a bankruptcy petition is filed, almost all the assets and property owned by the petitioner become the property of the bankruptcy estate. When filing Chapter 7 bankruptcy, the trustee handling the bankruptcy case can sell the petitioner’s nonexempt property to collect funds to distribute to creditors. In Chapter 13 bankruptcy, the hypothetical value that would have been paid under a Chapter 7 is one important base line of how much money in plan payments is to be paid to unsecured creditors through the agreed-upon Chapter 13 repayment plan.
Protecting Property with Bankruptcy Exemptions:
Bankruptcy petitioners can protect specific property in Chapter 7 bankruptcy, and reduce the amount required to pay back to unsecured creditors in Chapter 13 bankruptcy through bankruptcy exemptions. Exempt assets are protected during bankruptcy. If a property or asset is determined as an “exempt” asset, the petitioner can keep it. So, if a jointly-held property has no equity or is exempt, it is not affected by bankruptcy.
How Is Joint Property Handled in an Individual Bankruptcy?
If you are filing bankruptcy, you are an owner in jointly held property, and that property is not fully exempt and has equity, speak to an experienced bankruptcy attorney. How the joint property will be handled in bankruptcy will depend on where you live, and the joint owner’s identity. Tennessee law requires bankruptcy petitioners to use state exemptions, except in certain circumstances. One of the most crucial bankruptcy exemptions is the homestead exemption.
What is the Homestead Exemption?
The homestead exemption allows you to keep your house in most bankruptcy cases. According to Tennessee law, the following amounts are exempt:
- $5,000 for single homeowners
- $7,500 for joint-owners
- $25,000 per debtor that has custody of a minor child within the household
- $12,500 for single owners over 62 years of age (20,000 if married to a spouse under 62)
- $25,000 if both spouses are 62 years of age
The amounts above reference the home’s equity, which is the difference between what a homeowner owes on the home and the value of the home. If the amount of equity falls below the maximums listed above, plus the costs of sale including a cost of realtor, and the Trustees fees, and there remains no material dividend for unsecured creditors the petitioner can keep the home after bankruptcy. If the remaining equity is worth materially more than the allowable exemption, the trustee may choose to sell the property in Chapter 7 bankruptcy. If the property is sold during Chapter 7 bankruptcy, the petitioner is entitled to a payment in the exemption amount. If your home is not exempt, but you wish to keep it, discuss your options with a bankruptcy attorney. You may have the choice to keep your home by catching up on missed mortgage payments through a Chapter 13 bankruptcy. If only one spouse holds all the debts, that spouse files individual bankruptcy, and the home is held as a tenancy by the entirety, there is no limit on the exemption amount.
Special Rules for Tenancy by the Entirety
In Tennessee, married couples can hold property as a single marital entity in tenancy by the entirety, so if only one spouse files bankruptcy (individually), a tenancy by the entirety may be treated as exempt in bankruptcy. However, if a married couple with joint ownership of their home files joint bankruptcy, property owned in tenancy by the entirety will generally not be exempt.
Do you have questions about bankruptcy law and how to file bankruptcy? The experienced Tennessee and Georgia bankruptcy attorneys at Kenneth C. Rannick P.C. can help. We help good people through bad times every day, and we can help you, too.