I co-signed on my dad’s house. Now he is filing for bankruptcy. Can I keep the house since I co-signed? I am able to pay the mortgage.

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I co-signed on my dad’s house. Now he is filing for bankruptcy. Can I keep the house since I co-signed? I am able to pay the mortgage.

His business is going bankrupt. Does he have to bankrupt on the house as well? He has two mortgages. I co-signed on the first one only. Will that make a difference?

Asked on May 31, 2009 under Bankruptcy Law, Tennessee

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Several different issues:

1) Did you simply co-sign the loan, in which case you guarantee payment but do not have an ownership interest in the home? Or did you co-purchase it with your father, so that both your names are on the lease? If you are not actually an owner of the home, but simply guaranteed the loan, then you have no ownership interest in the home.

2) Is your father's business a corporation ("Inc.") or limited liability company ("LLC"), in which case there's a good chance that a business bankruptcy will not affect him personally--Inc.s and LLCs are separate legal entitites. On the other hand, if he was just running his business either under his own name or under an assumed name (a "d/b/a" or "doing busines as") without setting up a separate legal entity, then his "business" going bankrupt is him going bankrupt.

3) The other mortage--both mortages need to be paid for someone to keep the house. If either one is defaulted on, or not paid, that lender can foreclose. That means that economically, you'd have to be able to pay both mortgages.

Without more facts, it's tough to answer definitively, but my suspecion is that if your father is filing for bankruptcy *and* you are just a guarantor on one of two mortgages (and not a co- or joint owner of the home), that you do not have any sort of legal right to keep the home.

However, if you *can* pay both mortgages, you might be in a very good position to contact the lenders and work something out under which you can take over the mortgages and the house--though this would need your father, the current owner, to also agree to the transaction. Since foreclosure or a forced sale is in no one's interest, you may even be able to get all the interested parties (father, lender 1, and lender 2) to allow you to get the house for something less than the full face value of the loans. The key is that you have to able to put together a convincing case that you can afford the home and that everyone comes out better if you get it...and you should take the initiative and do this now, before the bankruptcy filing goes through.

Once matters are in the hands of the bankruptcy court, rather than being a private negotiation between parties, they become more expensive and complicated.


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