What happens to jointly owned property if one owner files for bankruptcy?

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What happens to jointly owned property if one owner files for bankruptcy?

My ex-partner and I own a cabin that I have lived in by myself for the last 15 months I have been trying to buy her out now she is threatening me with bankruptcy. My father has over $100,000 in this house. Can she legally do this? She abandoned me and this house 15 months ago; I have put $30,000 in it in the last 15 months. How can I stop this?I am permanently disabled and can’t afford to have high legal bills, The cabin is worth half of what it was because the market is so bad here.

Asked on September 6, 2010 under Real Estate Law, North Carolina

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

If this asset is considered to be exempt it will not become part of the "bankruptcy estate"; if it is labeld as non-exempt property then that is a different matter. Since the debtor does not live there it's unclear. 

If the property is considered to be non-exempt, the trustee has the authority to force a sale of the entire asset including the co-owner's interest. However, before a sale can take place, the trustee must determine whether or not he the property can be partitioned (ie divided). This separates the debtor’s interest from the remaining co-owner's. If the property can be partitioned, only the debtor’s portion will be sold. In situations where partitioning is not possible, the bankruptcy court can approve a sale of the entire asset (ie the whole property) - but only if the bankruptcy estate would realize substantially less from the sale of the debtor’s portion alone, than the estate would receive if the property were sold as a whole. However, before such a sale can take place, the court must find that the benefit to the bankruptcy estate outweighs any harm to the co-owner. This is done through an proceeding brought by the trustee against a co-owner. In such a case, the co-owner has the opportunity to settle with the trustee by purchasing the debtor’s interest at a discounted price. If no agreement can be reached, the court will decide whether the entire asset can be sold.

You may want to consider filing for a partion on your own, whether or not there is a bankruptcy filing.  However, if there is a subsequentbankruptcy filing you could you need to be aware of the law regarding fraudulent conveyances. Frankly, in a situation such as this you really speak with either a real property or bankruptcy attorney as to your rights.

Since  money is an issue, see if you qualifies for representation by legal aid or see if they can recommend someone to help you.  Also, check if there is a law school nearby to where you live; they typically run free/low cost clinics that handle these type cases.  Additionally, you can contact the local Bar Association your county; they may have a list of attorneys who will take your case "pro bono" (for free) or at least for a reduced fee based on your income/circumstances.


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